Are you look for deeply discounted stocks to buy? One way you can find deals is by looking at stocks which are trading below their book values. Depending on the industry and the risk a company is facing, investors may not be willing to pay even book value for a stock. And in some cases, that risk is overblown, and it could make for a great buying opportunity.
Three stocks that are trading below their book values today are Kraft Heinz (KHC 0.90%), Citigroup (C 0.51%), and General Motors (GM 0.40%). Let's take a closer look at these stocks to see if they are too risky to invest in, or if they are bargain buys.
NASDAQ: KHC
Key Data Points
1. Kraft Heinz: 0.9 times book value
Kraft Heinz is a popular consumer goods company. It has many top brands in its portfolio such as Oscar Mayer and Kool-Aid, in addition to Kraft and Heinz.
Over the years, however, the company has faced challenges. In 2018, it wrote down its assets to the tune of $15.4 billion. And in 2019, it also slashed its dividend. In short, the company has lost the trust of its shareholders over the years. Over a five-year period, the stock is up just 11%. The S&P 500, meanwhile, has generated returns of more than 80% during that same stretch.
And while the company has been relying on price increases to boost its growth, that strategy may be running out of steam. In its most recent quarter, for the period ended March 30, Kraft's sales declined by 1.2% to $6.4 billion, and profits fell by 4% to $801 million. There could be more headwinds ahead for the business as inflation remains a problem, and as long as that's the case, private-label products may be more attractive to consumers than Kraft's big brands.
In the long run, however, it still may be an attractive buy. At 4.4%, the stock's high dividend yield is one of the main reasons for investing in Kraft right now. As long as you temper your expectations, this could make for a sound long-term investment.
NYSE: C
Key Data Points
2. Citigroup: 0.6 times book value
It's not uncommon for bank stocks to trade at or around their book values. But in Citigroup's case, it's trading nowhere near its book value. Investors are hesitant with Citigroup, as the company is in the midst of a restructuring effort to become leaner and more efficient. Over the next two years, the top bank is planning to shed 20,000 jobs from a global workforce of 239,000. In 2021, the company announced it would be exiting more than a dozen consumer banking markets in Asia, Europe, and the Middle East.
While scaling down its operations may improve margins, it also limits the growth opportunities for the business in the long run. In its most recent quarter (for the first three months of 2024), the company's net income fell by 27% to less than $3.4 billion. Credit costs rose by 20%, with Citigroup incurring net credit losses of $2.3 billion during the period versus just $1.3 billion a year ago. And with potentially tougher economic conditions ahead, things may not get much easier for Citigroup as the year goes on.
Down 6% in five years, Citigroup's returns have been even worse than Kraft's. While the stock does appear to be cheap, and it does pay an above-average yield of 3.3% (the S&P 500 average is 1.5%), this is another stock that investors should be careful with here. While there is a good margin of safety with the stock right now, and it too could be a good buy for the long term, investors should prepare for what could still be a bumpy ride ahead with Citigroup.
NYSE: GM
Key Data Points
3. General Motors: 0.8 times book value
Automaker General Motors rounds out this list of discounted stocks. Its five-year return of 21% is the highest of the stocks on this list, which is still far below the S&P's performance.
Trading at low multiples is nothing new for the car company, as its massive debt load is a big reason investors aren't eager to pay a high price for the stock. As of the end of March, the company's total non-current liabilities (including long-term debt and other liabilities) were $114.2 billion -- more than its current assets of $106.5 billion. While GM doesn't need to worry about paying all that in the short term, it's still a risk that hovers over the company, especially as interest rates remain high.
The positive is that the business is still generating strong operating results. Last quarter, revenue totaled $43 billion and rose nearly 8% year over year. The net income of nearly $3 billion also improved by 24% from the prior-year period. However, with consumer demand potentially softening as economic conditions worsen, GM may face no shortage of challenges.
With interest rates likely to come down at some point within the next year, GM could soon become a much more attractive option to risk-averse investors. At a discounted valuation, this is another stock you may want to consider adding to your portfolio.
