If there's an upside to a rough market, it's that when stocks fall, they often fall far enough that the company behind those shares looks like a downright bargain. When opportunities like that arise, if you're sitting on cash, it just might be a good idea to put that cash to use and purchase some shares.
Of course, even a bargain price is no guarantee of a positive return, especially in the near term. Still, it's better to wait for a recovery while holding value-priced stocks than to miss that recovery and only buy after those stocks rise. With that in mind, these two stocks look like they could potentially be great buys for some of that cash.
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A company planning to be bought out for well above its current market price
Grocery chain Albertsons (ACI 0.35%) has agreed to be bought out for $34.10 per share, less a $6.85 special cash dividend that has already gone ex-dividend. If you do the math, the net acquisition price will wind up around $27.25 per share, with the possibility that some stores may need to be spun off into a remaining company to appease regulators.
Despite that very firm, cash-based offer on the table, Albertsons' shares recently traded hands at $20.81 each. That gives investors the potential of around a 30% return just for buying and waiting for the acquisition to close. Clearly, the market is expecting trouble getting the acquisition to close, supported by the fact that court challenges have held up the payment of that acquisition-related dividend.
Yet, even if Albertsons' plans to be acquired fall through and it remains independent, investors have what looks like a decent bargain on their hands. It trades at around seven times its anticipated earnings, and those earnings would be expected to grow at around 8% per year for the next five years if it remains independent. On top of that, the $0.48 per share ordinary dividend it pays over the course of a year provides investors with a respectable yield above 2%.
Combined, you have a company whose shares are being punished by the uncertainty surrounding its future, yet neither likely outcome looks bad for investors. If the acquisition is completed, shareholders will get a substantial premium to the company's recent price. If it isn't, they get what looks like a solid, growing business available at a value price.
This business plays a straightforward role in a critical industry
Medical Properties Trust (MPW 2.54%) runs a fairly straightforward business. It's a real estate investment trust (REIT) that owns hospitals. The beauty of hospitals is that patients will need their services pretty much no matter what the economy does. As a result, the landlord of those buildings -- in this case, Medical Properties Trust -- has a very high likelihood of getting paid.
Of course, the downside of predictability is that the company isn't expected to grow very quickly. Analysts expect around 6.5% annual earnings growth over the next five years. Still, that combination of predictability and slow growth means the company is available at a reasonable valuation of around seven times its anticipated forward earnings.
What really makes it interesting for investors, though, is its dividend. Medical Properties Trust is a REIT, which means it must pay out at least 90% of its earnings in the form of a dividend. Medical Properties Trust currently pays a dividend that annualizes to $1.16 per share. At a recent price of $12.36, that works out to a yield above 9.3%.
The mandatory dividend plus the expectation of modest growth means investors not only get that substantial payout but could also see those payments increase over time. Indeed, Medical Properties Trust has been able to slowly increase its dividend since 2013.
Combine the company's fairly low price with its modest expected growth and high dividend, and you get a stock certainly worth a second look versus holding on to cash.
Now's the time to look for bargains
Thanks to the rough market we had in 2022, it's much easier today than before the crash to make a case that some stocks can be found at bargain prices. The thing about bargains, though, is that they don't tend to last for long. So even if Albertsons or Medical Properties Trust isn't what you're looking for or doesn't entice you to buy shares instead of sitting on cash, now looks like a great time to start bargain hunting. You just might find the perfect business to persuade you to trade your cash for shares.