The market has come roaring back in 2023, led by the technology sector, but not all areas have outperformed. In fact, there are some sectors, like financials , that have struggled. Similarly, some individual companies in other sectors haven't fully recovered. So if you are willing to do some digging, you can find some bargains.
Here are two stocks that just went on sale that are worth considering.
1. Walt Disney
Walt Disney (DIS -0.04%) has had a rough couple of years, with its stock price dropping 15% in 2021 and 44% in 2022. It is currently treading water in 2023, down about 1% year to date as of July 24.
At $85 per share, it is near its lowest level in close to 10 years -- although it did dip below that briefly at the start of the pandemic, which took a bite out of its theme parks. But that business has bounced back nicely, as has its movie business. However, its TV networks and streaming services have struggled during this transition from cable to streaming. The streaming businesses, particularly, have been hampered by high expenses to get this business off the ground.
But Disney CEO Bob Iger has been making some moves to turn things around for the streaming business, starting with aggressively cutting costs and launching an ad-service tier. Iger expects this business to be profitable in fiscal year 2024. The TV and streaming businesses will indeed go through changes, as the company plans to launch a single app for Hulu and Disney+, is looking for strategic partners for ESPN, and may sell off its TV channels, like ABC.
So where does it go from here? Well, Disney probably has the best brand in the entertainment business and one of the best brands in the world, period, along with a strategy to fix what ails it. What makes Disney even more compelling is its valuation, as its forward price-to-earnings (P/E) ratio is down to 16, from 24 at the end of March. In the meantime, its five year P/E-to-growth (PEG) ratio is 0.77, which means analysts estimate it's undervalued compared to future growth potential, and its price-to-sales (P/S) ratio is just 1.8, down from 2.2 in March.
Look for more details on these initiatives when fiscal third-quarter earnings are released on Aug. 9, but for this stock to be trading at this price, it definitely warrants a close look.
2. PayPal
Another great brand that is poised to make a comeback is PayPal (PYPL 2.90%), the digital payments leader. It was not long ago that PayPal was on top of the world. Post-pandemic, its revenue and active users soared as more people worked and shopped from home. The stock price skyrocketed to over $308 per share in July 2021, but since then has fallen 76% to its current $73 per-share price.
There were several contributing factors, including too many acquisitions that haven't panned out (Honey and Paidy, to name two); a return to normalcy after the pandemic shutdowns; growing competition from Apple Pay and others; the end of its exclusive deal with eBay; and high inflation, to name a few.
CEO Dan Schulman's stated goal of reaching 750 million active users by the end of 2025 and ultimately reaching 1 billion active users had to be walked back. After the first quarter, PayPal had 433 million active users, which was actually a 2 million drop from the previous quarter.
As a result, PayPal's valuation has dropped, with a P/E ratio of 31, down from 36 at the end of 2022, and a PEG ratio of just 0.66 -- down from 1.4 at the start of the year. A PEG ratio below 1 typically means the stock is undervalued based on analyst estimates of its future growth expectations.
So, does a lower valuation make it a buy? Not always, but in this case, it might be a good time to consider PayPal for a few reasons. First, PayPal is in the process of hiring a new CEO to replace Schulman, who is stepping down at the end of the year. Schulman helped drive tremendous growth for PayPal, but new blood could help refocus the business and drive it forward. Hopefully, there is renewed investor excitement around the new hire, who should be named sometime this year.
Also, PayPal remains a good business. Even with some of the capital blunders, a struggling macroeconomic environment, and increasing competition, it still has a great brand and remains the leader in the payments business with both PayPal and Venmo. In addition, it has consistently been able to increase total payment volume (TPV) and revenue, even through the rough patches.
Finally, PayPal has solid margins and a ton of cash. It has generated $5.8 billion in operating cash flow and $3.4 billion in free cash flow over the past 12 months, giving it lots to work with. PayPal reports its fiscal Q2 earnings on Aug. 2, so you may want to wait for that for some more visibility on the CEO and active users. But definitely put this one on your radar, as it is a good company on sale.
