After an early rally this year, when the S&P 500 was up nearly 20% and almost entered another bull market, the index tumbled and is up only 9% in 2023. It's lost roughly 10% since the end of July, and as it notches a further loss in October, it's down for the third month in a row.
Despite many experts saying they don't think there will be an official recession, the end of the bear market seems far off. The upside of that is that many stocks are still down, and you can get great deals that will disappear when the market moves up.
Warren Buffett is known for his mantra of being greedy when others are fearful, so it shouldn't be surprising that there are some excellent Buffett stocks on sale now. If you have $300 available to invest after paying down and saving for emergencies, Ally Financial (ALLY 0.41%) and American Express (AXP -0.62%) are two bargain stocks to buy right now.
1. Ally: A smaller bank with big opportunities
Ally is the 22nd-largest bank in the U.S., which means it's not all that small, but it's not one of the biggest. It's entirely digital though, and without having to spend on costly real estate and related expenses, it can offer customers high interest rates on savings accounts and other products. That's attracted plenty of new customers for accounts, credit cards, and other products and services. It added more than 300,000 new accounts for a total of 3 million, and total deposits increased by $7.1 billion from last year to $153 billion in the third quarter.
It has its roots in auto lending, and that's still one of its biggest segments. Despite the pressured economy, it had a record 3.7 million auto loan applications and originated $10.6 billion in auto loans in the third quarter.
The bank has been hurt, however, by high interest rates. Adjusted earnings per share decreased from $1.12 last year to $0.83 this year, and net interest margin dropped from 3.81% last year to 3.24% this year.
Ally Stock is down about 2% this year, and at the current price, shares trade at the dirt cheap valuation of only a little more than 6 times trailing-12-month earnings and 0.7 times book value, which suggests it's a bargain. Yes, the stock is cheap for a reason right now. But Ally has plentiful cash reserves, tons of customers, and huge potential to bounce back and provide shareholder value when interest rates stabilize. Last but certainly not least, at the current price, its dividend yields 5%, giving investors a good reason to buy right now.
2. American Express: The profitable fee model
American Express has been reporting outstanding performance throughout the inflationary period, and that continued into the third quarter. Revenue increased 13% year over year, and net income was up 30% even with a 58% increase in provisions for losses. Management reiterated its full-year forecast.
The updates in the quarter were sustained positive trends that have already marked American Express as a relevant, growing company. Millennials and Gen Z customers account for the largest number of new cardmembers by age group, at 60%, and as the company taps into their spending power and creates loyalty, this group provides years of growth.
American Express targets an affluent customer base that's more resilient during challenging economic conditions. While goods and services volume increased 6% over last year in the third quarter, travel and entertainment increased 13%. These customers are still spending on experiences despite higher prices.
American Express stock is down about 1.5% this year. Investors weren't happy with the third-quarter report despite management's sunny outlook. That was likely due to the increase in provisions for credit losses, which means that American Express is expecting some pressure, even if it's ready to manage through it. Financial stocks in general haven't been faring well amid persistent economic instability, rising interest rates and lingering inflation.
At the current price, American Express stock trades at only 13.7 times trailing-12-month earnings, which is about the cheapest valuation in the past three years.
American Express also pays a dividend, and while not as high as Ally's, it yields 1.7% at the current price, above the average S&P 500 yield of 1.65%.
American Express has a strong future ahead, with a solid membership model that generates card fees and customer loyalty. This is a great opportunity to buy at a low price.
