The stock market is on the verge of a new bull market, but that doesn't mean there aren't bargains to be found.
Some stocks are still down by 50% or more from their pandemic-era peaks, setting up buying opportunities for companies that are poised to return to growth as the economy normalizes. Keep reading to see two stocks trading at a discount that are ready to pop.
Image source: Getty Images.
Disney's magic is far from over
Anders Bylund (Walt Disney): It's hard to believe, but Walt Disney's (DIS -0.04%) ultra-reliable stock is hanging out in Wall Street's bargain bin nowadays.
The media powerhouse's share price has been sliding downward since the spring of 2021, and the stock currently trades roughly 55% below that peak. Sure, the House of Mouse is facing some challenges right now, but most of them also apply to every competitor.
- Streaming subscriber growth: The Disney+ video-streaming service used to add subscribers by the millions, but that torrent has slowed to a trickle. Well, the same is true for arch-rivals Netflix (NFLX -0.63%) and Warner Bros. Discovery (WBD -2.17%) -- this slowdown is industrywide and closely tied to the turbulent economy.
- Ad sales: Disney's linear TV networks have a hard time selling ad-spot time to other companies. Again, this is a theme across every media platform and advertising opportunity these days. Businesses are holding back on their marketing budgets until people are ready to buy what they're selling again.
- Merchandise: Likewise, people aren't buying a ton of Disney-branded T-shirts and lunchboxes in this shaky economy. Any retailer or maker of consumer goods will tell you the same story.
When the tide turns -- as it surely will, eventually -- Disney will ride its world-class brand name to a triumphant return. Don't forget that the company is back under the management of industry legend Bob Iger, who steered Disney through even rougher waters in the economic downturn of 2008.
And finally, Disney's bears and critics are ignoring the fact that several segments are doing just fine. For example, the cruise line is nearly sold out on a regular basis, with a 98% occupancy rate in the recently reported third quarter, and Disney World's revenue was 21% above its pre-COVID-19 level.
So Mickey Mouse has taken a few jabs, but he's ready to fight back. I expect big things from this little media giant in the long run, and Disney looks like a no-brainer buy in this enormous dip.
PayPal is ready for a payday
Jeremy Bowman (PayPal): Few big tech stocks have fallen as far as PayPal (PYPL 2.90%) in the post-pandemic sell-off.
The digital payments leader was a stock market darling for years, but a combination of slowing growth, competition from Apple and others, and questions about its leadership transition have pushed the stock down 80% since its peak in 2021.
Even as the Nasdaq has bounced back this year, PayPal has continued to decline, but that sets up a buying opportunity for patient investors.
First, the company still has a long runway of growth ahead as digital payments replace other forms of payment like cash and credit cards.
Second, the company's recent financial results are better than the stock's decline would indicate. Total payment volume was up 11% in the second quarter, and the company's revenue grew 7% to $7.3 billion. Adjusted operating income jumped 20%, driving a 24% increase in adjusted earnings per share.
Management also expects adjusted EPS of $4.95 this year, up 20% from 2022 levels.
Based on that forecast, the stock trades at a forward price-to-earnings (P/E) ratio of less than 13, which is a dirt-cheap valuation for a leader in the fintech space. The company is also putting that capital to good use with plans to buy back $5 billion in stock this year, which will reduce shares outstanding by roughly 7%.
After months of suspense, PayPal finally announced a new CEO, naming Alex Chriss as Dan Schulman's successor for the top job. Chriss has spent 19 years at Intuit, where he was most recently executive vice-president and general manager of Intuit's Small Business and Self-Employed Group. In that position, he's been responsible for more than half of the company's revenue, setting him up well to manage PayPal, which has a similar customer base.
PayPal has a well-known brand and a good product, and the company should benefit when the economy strengthens and spending on goods picks up again. Until then, investors can take advantage of the stock's dirt-cheap valuation, as its P/E isn't likely to be this low forever.
