It is hard to believe, at least for me, that it has been almost a year since the pandemic broke the stock market in March 2020. The market has recovered since the casualties, and smart investors have taken the opportunity to acquire shares in large companies that were hit along with the broader market. But, with the stock market already at record levels, there don’t seem to be many bargains left.
Many large companies have seen their stock prices soar, even though sales have not fully recovered. For example, DisneyThe company’s sales fell 22% in the first fiscal quarter of 2021, but its share price is 44% higher than a year ago.
And “haggling” doesn’t always mean cheap. There are many companies struggling with low-priced stocks, which makes them not bargains, but value traps.
But here are two solid companies whose stocks are outperforming their businesses in general and can still be bought at bargain prices.
Image source: Getty Images.
Old business, new management
Lowe’s (NYSE: LOW) opened its first store in 1921, but is always second to the home renovation leader Home Depot, which has only existed since 1978.
The company in second place hired Marvin Ellison as CEO in 2018 and made great strides in time for the pandemic. It outperformed its main rival, with comps increasing by 30% in the third quarter ended October 30.
Lowe’s invested heavily in its digital infrastructure just before the pandemic hit, and digital sales grew 106% in the third quarter. It is also focused on its professional businesses, and comps have increased more than 20% in this segment.
The company expects sales growth to slow as coronavirus vaccines are launched and people start spending their money elsewhere, but its new and improved digital program is expected to keep sales moving. Digital accounts for only 7% of total sales, and Lowe’s has made more investments in its supply chain in recent months, including opening call centers and distribution centers to handle digital orders. It is also in the process of renovating store layouts to be guided by projects rather than products, which Ellison believes will provide a more intuitive shopping experience for customers, especially professionals.
Lowe is in the exclusive Dividend Kings club, which means he has increased his dividend annually for more than 50 years. It is not a very high yield of 1.32%, but it is growing consistently and steadily. Lowe’s shares have appreciated 80% in the past three years and are traded at a reasonable profit of 24 times in 12 months. But sales and earnings are likely to continue to grow, as will stock prices.
Image source: Getty Images.
Old company, new business
American Express (NYSE: AXP) it has been around since 1850, but has been modernized with technology to fuel its uncompromising dedication to customer service.
Revenue fell during the pandemic, falling 29% in the second quarter, and the company outperformed similar companies, as its customers typically spend a large amount on travel and entertainment, which plummeted during the blocks. T&E accounted for 28% of total spending in the fourth quarter of 2019, but only 12% in the fourth quarter of 2020.
On the other hand, its more affluent clientele can still afford to spend in challenging circumstances, and non-T&E spending has already surpassed pre-pandemic levels. Revenue increased to an 18% reduction in the fourth quarter ended December 31, and American Express recorded revenue throughout the year, including $ 1.76 in the fourth quarter, a 13% decrease year over year.
The financial services company, which is known for its credit cards, also offers solutions for small businesses to merchants, including digital solutions through its financial technology platforms. Their cards have won multiple awards, and customers have disbursed $ 1.2 billion in annual fees for the privilege of carrying an American Express card in the fourth quarter, a 13% year-over-year increase that represents 13% of total revenue.
You are about to see high growth when the pandemic subsides and customers take care of their pent-up travel demands. This may take some time, but that is why the stock is a bargain now.
American Express maintained its dividends during the pandemic, which also yields 1.32%. Its share price has risen 35% in the past three years, and the shares are trading 35 times, behind the 12-month profit, which is not very cheap. But that price reached new heights just before the pandemic brought it down and, as the business recovers, it must rise to new heights again.