Everybody loves a bargain. There aren't too many on the market these days, with the S&P 500 near record highs and earnings suppressed by the stronger dollar. The P/E ratio of the broad-market index has jumped to 24, but you can still find good deals if you know where to look. Below are three bargain buys for investors looking for value.
1. General Motors (GM 4.42%)
Whether it's the stigma from the bailout, the threat of the self-driving car, or the seeming lack of growth opportunities, GM stock is one of the lowest valued on the market. Shares of the auto giant fetch a P/E under 6, a shockingly low valuation for a company that's gone from scapegoat to a profit engine in a few short years. The automaker consistently breezes by earnings estimates and is expected to grow earnings per share by more than 13% this year, thanks to a healthy clip of share buybacks and improved margins.
The Chevy maker also pays a 5% dividend yield to boot. Factor in the steady earnings growth, and that's not a bad deal for a stock trading at less than six times earnings. While GM's valuation may be low because of its lack of meaningful sales growth or expected disruptions in the industry, the company is making all the right strategic moves to maintain its competitive position. The company recognized the opportunity in China early on and is doubling down on the world's largest car market, with plans to roll out 60 new or refreshed car models over the next five years. Recognizing the emerging threat of ride-hailing apps, GM made a $500 million investment and partnership with Lyft, giving it a key foothold in the expanding market. The two companies also plan to put self-driving taxis on the road within a year, potentially opening up another valuable revenue stream.
2. Apple (AAPL 0.39%)
Apple shares got hammered following its recent earnings report, which saw the company post its first quarterly revenue decline in 13 years, with iPhone sales falling sharply. Despite the disappointing report, it would be a mistake to call the tech giant a has-been. Apple's Services segment, which includes features such as the App store and Apple Music, saw revenue grow 20% in the past quarter and is on track to deliver more than $25 billion in revenue this year. The iPhone 7 has the potential to recharge sales growth, and there's no telling when the company will release yet another blockbuster product as it builds out capabilities in automobile and television.
Apple stock trades at a P/E of 10, but that figure is closer to 7 after factoring its net cash hoard of around $150 billion. The company is committed to buying back shares to boost the value of earnings and offers a 2.4% dividend yield, with plenty of opportunity to grow it over the coming years. Shares are trading near a 22-month low, offering a truly bargain-bin price for this money-printing machine.
3. Chipotle Mexican Grill (CMG 0.86%)
Chipotle can hardly be considered a bargain according to ordinary metrics. After all, the stock is trading at a P/E of 30, and its sales are swooning following last year's series of foodborne-illness outbreaks. But the good news for bargain hunters is that Chipotle's shares are down 40% from their all-time high last year, meaning that the opportunity for a recovery is sizable. To reach that peak again would mark a near 70% gain in its share price.
It won't be easy. Same-store sales plunged nearly 30% in its most recent quarter, as customers have been slow to return following the rash of bad news, but plenty of other restaurant chains have recovered from similar food-safety scares, such as Jack in the Box, and Taco Bell, both of which have soared since.
This may be a wasted year, but the stock will look stronger once comps start moving in the right direction by the fourth quarter of this year. The burrito chain is still expected to post a profit for the year and has been aggressively buying back stock, which will boost the value of profits once they return. It continues to grow its store base faster than 10% and its seed concepts ShopHouse, Pizzeria Locale, and international also hold promise.
Shares haven't been this cheap since 2013, and they may not be again.
