While it's bounced back a little in recent trading days, the stock market is still off all-time highs. Moreover, some great stocks that sold off have remained down. This is despite their high-quality businesses that should generate profits that reward investors for many years to come.
Instead of lamenting their lack of bouncing back, investors shouldn't miss out on the chance to buy. In this article, three Motley Fool contributors each bring one of their favorite bargain stocks worth buying, including a special-situation opportunity with Albertsons Companies (ACI +2.80%), streaming leader Roku (ROKU +2.49%), and beaten-up bank stock Live Oak Bancshares (LOB 5.75%).
This video streamer is down, but far from out
Eric Volkman (Roku): A perceived battle against a big retailer has considerably dampened sentiment on Roku, a maker of video streaming devices and a platform operator. The company's shares fell off a cliff in mid-February and have basically stayed in the dirt since then.
It's not hard to figure out why. At that time, a hot rumor had it that Walmart (WMT +0.40%) was aiming to buy smart-TV manufacturer Vizio, bringing the already-close business partners even closer. That rumored deal was confirmed mere days later; cue the extended Roku slide.
What worried Roku watchers most is Vizio's SmartCast TV operating system (OS), which is comparable to Roku's OS. The main worry is that with its vast financial resources, Walmart will pour capital into SmartCast to grab market share from Roku. As the latter company remains ever-thirsty for ad revenue through its OS, that could be a real threat to its survival.
I think this fear is very much overblown. Of the two, Roku is by far the more dominant TV OS player, with its 80-million-strong active user base (as of the end of 2023) -- more than four times the size of Vizio's.
Besides, in Walmart's press release on the Vizio deal, it wrote that owning Vizio would help it "connect with and serve its customers in new ways including innovative television and in-home entertainment and media experiences." That sounds like Walmart considers Vizio more of a next-generation ad channel than its shot at being top dog in the TV platform patch.
Meanwhile, with streaming services continuing to proliferate, operating what's arguably the most successful platform-agnostic OS will make Roku an ever more attractive destination for advertisers. The Age of Streaming is still quite young, and as it matures, this company is sure to remain one of its more important pillars.
Everyone still has to eat
Chuck Saletta (Albertsons): If there's one thing the stock market often has trouble with, it's uncertainty. In the case of leading grocery chain Albertsons, the uncertainty centers on whether regulators will let fellow supermarket operator Kroger (KR +3.72%) complete its planned acquisition of Albertsons.
Yet when you take a step back from the headline news and look at the overall business, that uncertainty looks more like a tempest in a teapot than some fundamental concerns about Albertsons' future. Should it remain independent, Albertsons' shares trade around a modest eight times the company's anticipated earnings.
When you layer in the fact that analysts expect that it would be able to increase its earnings by around 8% annualized over the next five years, that looks downright cheap.
On the flip side, if Kroger is allowed to close on the acquisition, Albertsons' shareholders would get somewhere around $27.25 per share. Since Albertsons' shares recently traded at $20.32, that could be as much as a 34% gain to be had if the deal actually comes to fruition.
Of course, if the deal does close, the acquisition price will be reduced a bit due to the number of stores being divested.
When all is said and done, it looks like the worst-likely scenario is that Albertsons' shareholders will still own a solid business that currently trades at a value price. Everyone still has to eat, after all, and that fact will hold true no matter how this particular acquisition attempt ends up.
Remembering the bigger picture
Jason Hall (Live Oak Bancshares): Banking can be a worrisome place to invest. Banks can be very profitable when the economy is going well (as it is now). But things can get ugly, quickly, when the economy turns south (as so many investors continue to expect). That has certainly played a role in pushing shares of Live Oak down sharply in recent months.
Factor in its recent quarterly results -- which lacked much growth for what is, at its core, a growth-focused bank -- and you have a stock that's down over 25% so far this year.
This is where smart investors can take advantage of the market's dislocations and short-termism to find great long-term investments. Live Oak's business is lending to small businesses. And in the current environment, management is sticking to its playbook: Focus on high-quality, low-risk borrowers in industries they know well that have great profitability metrics and long-term growth potential.
So while the market is hyper-focused on the current and next quarter's results, and near-term economic worries, Live Oak is building a business that can deliver for decades to come.
And today you can buy shares for a bargain price of about 17 times earnings and 1.6 times book value. With a market cap around $1.5 billion and less than $12 billion in assets, investors thinking long term should really consider buying Live Oak at these prices.
