Even though the stock market has rallied so far this year, there still are plenty of bargains to be found across industries. In some cases, we're talking about solid companies that have fallen out of favor as investors seek other opportunities. In other cases, they may be companies in transition that could offer you future rewards.
Here, I'll talk about one of each. Tractor Supply Company (TSCO 0.99%), a top provider of agriculture products, has delivered a solid earnings track record -- and prospects look bright too. Penn Entertainment (PENN 0.59%) a casino and sports betting company, signed a new contract that could be just what it needs to soar. Let's take a closer look at each of these stocks that could help make you richer over time.
1. Tractor Supply
Tractor Supply is the biggest rural life retailer in the U.S., selling everything from pet supplies to power tools and lawn mowers. The company operates more than 2,000 stores in 49 states and has an e-commerce site too. It also operates the Petsense stores and e-commerce site, featuring everything you need for your pet.
This business model has been a winning one over time. The company has reached more than $14 billion in annual sales, profit has climbed, and return on invested capital (ROIC) also has gained over the long haul. The ROIC increase indicates Tractor Supply has invested wisely, benefiting from the dollars spent on growth.
TSCO Return on Invested Capital data by YCharts
Even in a difficult economy, investors have been able to count on Tractor Supply's earnings power. In the second quarter, the company reported gains in net sales and diluted earnings per share, and importantly, gross margin increased to more than 36% from 35.5% in the year-earlier period. It's impressive to see widening margins considering today's high interest rate environment.
Now you might wonder whether Tractor Supply has reached its growth potential -- or if there's more ahead. There actually may be quite a bit of room to run when it comes to earnings and share price. Tractor Supply plans on increasing its annual new store openings to 90 as of 2025. And the company rose its long-term store target to 3,000, up by 200 from previous guidance.
Tractor Supply says the $180 billion addressable market offers it plenty of room for growth over time. Meanwhile, the retailer is trading for less than 20 times forward earnings estimates, which looks like a steal considering the company's track record and future potential.
2. Penn Entertainment
Penn operates casinos and is a player in the growing sports betting arena. The global sports betting market is set to expand at a compound annual growth rate of more than 10% throughout this decade, according to Grand View Research. With a market value of $3.4 billion, Penn isn't the largest player in the field, but a recent deal could help it up its game.
The company bought exclusive rights to the U.S.'s top sports brand: Disney's ESPN sports network. This means Penn gains access to the ESPN Bet trademark for U.S. online sports betting for an initial period of 10 years, with the possibility of renewing the partnership. As a result, the company's Barstool Sportsbook is becoming ESPN Bet as of this fall.
The deal is costing Penn $1.5 billion to be paid over the term of the agreement -- so it isn't cheap, but it may be worth the investment considering the advantages ESPN brings to the table. For example, through the arrangement, Penn scores promotional services across the ESPN platform for its sportsbook.
Of course, it's important to remember Penn is a company in transition, and its recent past may weigh on investors' appetite for the stock. Penn spent more than $500 million to buy Barstool Sports about three years ago, only to dispose of it just recently. That may make some investors wary of buying the stock until the company proves the new ESPN deal will indeed be the right move.
PENN PE Ratio data by YCharts
But, if you can handle some risk, you may consider a small bet (excuse the pun) on this sports betting company today, as it trades considerably lower than some of its peers -- and it could be heading for significant growth down the road.
