It's not easy to find legitimate bargains in the market these days. Winners keep winning, often at a pace that exceeds the improvement in their fundamentals. The stocks that are lagging are probably being left behind for a reason.
I still see bargains here. I think Verizon (VZ +0.29%) and Carnival Corp. (CCL 5.25%) (CUK 4.60%) are dirt cheap stocks in this somewhat elevated market. They would be a good place for your next $300. Let's take a closer look.
NYSE: VZ
Key Data Points
1. Verizon
You're not going to buy Verizon for high-octane growth. You have to go all the way back to 2009 -- 16 years ago -- to find the last time revenue for the wireless carrier has topped 6%.
Regardless, Verizon is a money machine. It generates a lot of cash serving the telecommunication needs of its 146.1 million consumer and business accounts. It has reported a normalized net income margin in the double digits for in each of the last 10 years.
It's not keeping all the money it's making for itself, either. Verizon pays out a generous quarterly dividend. Its current 7.1% yield is the highest among the Dow Jones Industrial Average (DJINDICES: ^DJI). It has raised its distributions in each of the past 19 years.
Is Verizon about to shift into a new era of heartier growth? Probably not. If the rollout of 5G technology and other infrastructure improvements in recent years didn't find the business pushing down on the accelerator, it's not likely to happen anytime soon. Analysts see revenue falling short of 3% growth this year and next year, just as it has failed to clear that bar in each of the past three years in the golden age of 5G.
The payoff here is that Verizon is cheap. It's trading for just nine times trailing earnings, and eight times forward earnings. It does have a debt-heavy balance sheet that makes its enterprise value double its market cap, but it's still an attractive value proposition. Slow and steady isn't great, but it's a winning recipe for a cheap stock that should hold up better than a market that appears historically overvalued.
NYSE: CCL
Key Data Points
2. Carnival
There's a lot to say about cruise line stocks in general and Carnival in particular. The industry was shut down for more than 15 months in the wake of the COVID-19 crisis, and even after the U.S. Centers for Disease Control and Prevention lifted its "No Sail Order" for ships, it was far from business as usual. Just a handful of ships were sailing well below capacity. There were passenger requirements and restrictions that watered down the experience, no pun intended.
Fast-forward to today. Carnival is on a winning streak of 10 consecutive quarters of record quarterly revenue results. It has an even longer run of bottom-line beats, landing ahead of analyst profit targets for a dozen quarters.
Carnival is the largest of the cruise lines in terms of fleet size and the number of passengers that walk up the gangplank. Its namesake brand is the best known option, and a mass market leader. It also has several more upscale lines.
It finally returned to profitability. Unlike Verizon or Royal Caribbean, its largest rival cruise line operator, Carnival isn't sharing its newfound wealth through dividends. However, net yield -- an industry metric that amounts to adjusted gross margin per available passenger cruise day -- is now at an all-time high.
The price to invest in Carnival is more than reasonable. It's trading for a modest 14 times the midpoint of its earnings guidance for this year. The multiple drops to 12 if you turn to what analysts are modeling for next year. In the meantime, consumer appetite for hitting the high seas continues to rise like the tide. It already has half of next year's sailing capacity booked. The total deposits for future sailings that it's holding is the highest that it has ever been at this time. Carnival is cheap, and its recovery is misunderstood and not fairly appreciated.
In the end, $300 is enough to buy either seven shares of Verizon or 10 shares of Carnival. You can also reshuffle your allocation to buy both. They aren't perfect stocks, but they are cheap -- dirt cheap -- in today's market.
