PepsiCo (PEP 1.81%) has lost around 25% of its value since hitting its five-year high. United Parcel Group (UPS 1.05%) is off its five-year high by roughly 60%. And Target (TGT 1.83%) is down roughly 66% from its five-year high.
All three are deeply unloved on Wall Street, which could be an opportunity for investors looking for dirt-cheap stocks right now.
Here's a quick look at each one.
Image source: Getty Images.
1. PepsiCo is shifting gears, again
PepsiCo is one of the largest consumer staples companies in the world, with industry-leading positions in beverages (Pepsi) and salty snacks (Frito-Lay). It also makes packaged food products (Quaker Oats). It can stand toe-to-toe with any of its competitors with regard to distribution, marketing, and innovation.
And it has a long history of success behind it, highlighted by its status as a Dividend King. But the company is a bit out of step with consumer trends right now, with a broad push toward healthier fare.
PepsiCo isn't sitting still. It recently bought the 50% of Sabra (known for hummus dip) it didn't own and acquired Poppi (pro-biotic beverages). It also bought Siete Foods, which has on-target Mexican-American offerings. Within PepsiCo's existing brands it is emphasizing protein and products with no artificial flavors or colors.
The products and brands here may be new, but the approach is the same one that has been used for decades. It is highly likely that PepsiCo gets back on track with consumers, if history is any guide.
Right now a $1,000 investment will get you roughly six shares of PepsiCo stock and lock in the historically high 3.8% dividend yield.
2. United Parcel Service is a turnaround tale
From a big-picture perspective, all of the stocks on this list are turnarounds. But United Parcel Service, or UPS as it is more commonly known, is the only one making dramatic changes to its business.
After the unusual demand spike for package delivery during the coronavirus pandemic had cooled, UPS realized it needed to go back to basics in a big way. It is working to streamline operations, integrate more technology into its process, and focus on its most valuable customers.
This turnaround effort will not be easy, quick, or cheap. In fact, the upfront capital investments are quite large, as are costs associated with things like slimming down the workforce. And the top line is going to take a hit as low-margin business is shunned.
More costs and less revenue is the recipe for ugly financials, and that's just what investors are seeing. Which is why the stock is so weak right now. But the company should come out the other side of the transformation a better business.
A $1,000 investment will allow you to buy 12 shares of UPS. The dividend yield is historically high at 7.9%, but given the nature of the big changes taking place (and the lofty payout ratio that's closing in on 100%) the dividend could end up being cut. If you buy UPS, do it for the turnaround, not the yield.
3. Target is bringing in fresh faces
Target is a large U.S. retailer that operates big-box stores. It offers a wide range of goods from groceries to hardware. The differentiating factor for the brand is the upscale feel of its stores and products. Only, right now, consumers are largely trading down to the lowest-cost options. Thus, Target is a bit out of step with consumers at the moment -- and its financial results, and stock price, show it.
Like the other two companies on this list, however, Target isn't sitting still. The board of directors has brought in a new CEO. The company has also shifted to a team approach as it looks to get sales growing again. As a Dividend King with more than six decades of annual dividend increases behind it, Target has been through hard times before. It is highly likely that the company will figure out the current problems, it will just take a little time.
Investors buying Target today will get roughly 11 shares of the stock with $1,000. Those shares will come with a historically high 5.4% dividend yield that seems likely to be safe given the dividend history here.
Three dirt-cheap stocks to buy now
PepsiCo, UPS, and Target all have historically high yields and deeply depressed stock prices, which makes them look dirt cheap. There are different risks associated with each one, but if you can stomach a little uncertainty, each one is worth a deep dive. That said, of the three, UPS' dividend probably faces the most risk of a cut, making it more of turnaround story than an income play.
