The stock market has had a phenomenal year overall, but a lot of the market has been left behind. Gains have been concentrated among a few large stocks, while profitable slower-growth companies are all but forgotten.
I think the absurdly cheap values on the market today include Verizon Communications (VZ 0.05%), PayPal Holdings (PYPL 1.41%), and Deere & Company (DE 0.16%). Let's review.
1. Verizon
Shares of Verizon have been cheap for years, and for good reason. The company spends a lot of money on building out telecommunications infrastructure only to need to reinvest in the next generation a few years later.
But that doesn't mean this isn't a cheap stock today. Shares are trading for just 7.6 times trailing earnings, and the dividend yield is 7.1%. The business is performing well, too.
You can see below that capital expenditures are going down as free cash flow is increasing. This is because the 5G buildout is slowing and Verizon is entering a cash-harvesting phase of the cycle.
VZ capital expenditures (quarterly); data by YCharts.
There are growth opportunities for Verizon as the company expands 5G broadband service and bundles wireless service with streaming services, which I think will drive revenue growth. Its costs and cash flows are heading in the right direction, and that's great for a stock this cheap.
2. PayPal
Shares of PayPal have had a tough 2023, falling 17.6%, but they're now trading for 18 times earnings in a down point for the payments company. This year saw increased competition and lower margins for some transactions, but PayPal along with companies like Adyen have put a focus on growing profitably instead of growing at all cost.
You can see below that free cash flow has fallen as margins have come under pressure, but that's the low point that I think presents an opportunity. PayPal hasn't suddenly become irrelevant in payments; it's just facing growing pains in relation to its margins.
PYPL free cash flow data by YCharts.
PayPal and a lot of other tech companies got caught up in growth during the pandemic, and it's taking time to bring pricing and its cost structure back to more appropriate levels. But that's why this is an opportunity for investors.
3. Deere
One of the most crucial companies in construction and agriculture is Deere, and its shares are trading for an extremely cheap 11 times trailing earnings. And while this may be a cyclical company, the trends are getting stronger for the business. You can see that cash flow is improving and most of the company's segments are doing well.
DE free cash flow data by YCharts.
Production and precision agriculture revenue has more than doubled since fiscal 2019 to $26.8 billion, and construction and forestry revenue has jumped from $11.2 billion to $14.8 billion in that time. Total earnings before interest and taxes more than tripled.
The world is going to need bigger, more advanced machines to feed people and build the future. Deere will be on the front lines of that revolution.
There's value if you know where to look
The market has been bidding a lot of high-profile stocks up in 2023, leaving behind some of the companies that underperformed or don't have a lot of growth in the value bin. But that's an excellent place to shop right now to find great buy-and-hold stocks.
