InvestorPlace
7 cheap stocks that can’t wait for 2021
Everyone loves a good deal, right? Well, when the market suffered that painful liquidation in March, it lowered its stock valuations. At the time, however, volatility was so high and there were so many unknowns that it was difficult to classify names. So, are there still cheap stocks to buy now? The short answer? Yes. This brutal decline in the second quarter created many cheap names. But in many cases, it is difficult to say what is cheap and what is a trap. That’s because we didn’t know how companies would react to the new environment. However, as we approach the end of 2020 – with all major US stock indices at new highs – it becomes clear that the market is doing well. And there are still several cheap stocks out there, waiting to get an offer from buyers. InvestorPlace – Stock market news, stock advice and trading tips Ranking the 10 hottest SPACs of 2020 in preparation for the new year Recently, I noticed some cheap options that became not so cheap last month. So, let’s see if we can find other bargains now. Alibaba (NYSE: BABA) Qualcomm (NASDAQ: QCOM) AT&T (NYSE: T) Gogo (NASDAQ: GOGO) Walgreens (NASDAQ: WBA) Ally Financial (NYSE: ALLY) Bristol-Myers Squibb (NYSE: BMY) Cheap stocks to buy : Alibaba (BABA) Source: testing / Shutterstock.com When someone clicks on an article about bargaining shares to buy, they probably don’t think they will see a high-growth technology company with a market capitalization of more than $ 648 billion. But this is what we have with Alibaba. Why are BABA’s shares on this list? Well, when I look for cheap stocks, I’m not just looking for names with a low price / earnings ratio. I also look for stocks with exclusive fundamentals or that are cheap in relation to the company’s growth rate. This is exactly what we have with Alibaba. From the peak to the recent low, stocks fell nearly 34%. Now, the price is over $ 234. But I have a rule of thumb called the “40% rule” – when a high-quality company drops 40%, it is worth looking at closely. Although Alibaba hasn’t fallen that far, it’s worth a look. The shares fell due to regulatory concerns, both for itself and for the Ant Group, of which the company owns a third of the shares. However, I see the technology company’s current regulatory headaches as nothing more than a relaxation of the Chinese government. This will also pass and the focus will return to the fundamentals of the company. Therefore, due to its absolute dominance in China’s e-commerce space, its stellar assets, infrastructure and its growth, Alibaba is extremely cheap. Although at 16.7 times the future earnings price, consensus estimates point to a 37% revenue growth this year and almost 21% next year. In terms of revenue, estimates point to growth of 48% this year and 30.5% next year. Qualcomm (QCOM) Source: Akshdeep Kaur Raked / Shutterstock.com The next on my list of cheap stocks is Qualcomm. Thanks to a great catalyst with 5G technology, Qualcomm is ready to produce high quality growth in the immediate future. In addition, its agreement with Apple (NASDAQ: AAPL) ensures that it will have trusted customers on the other side of the transaction. Despite this, however, the stock has risen unsteadily close to its new highs. The shares fell 9% over a three-day interval in mid-December. Currently, the stock remains 5.7% below this month’s high, giving investors the opportunity to buy. The company also recently started its fiscal year 2021, where consensus estimates point to 40% revenue growth. Therefore, investors are currently paying about 21 times the future earnings price. The 7 safest stocks to start 2021 on the right foot Furthermore, although next year’s estimates indicate a slowdown in growth, they still require overall growth. Add the 1.73% dividend yield – almost double the 10-year Treasury yield – and Qualcomm looks attractive. AT&T (T) Source: Jonathan Weiss / Shutterstock AT&T is almost always on the list of cheap stocks to buy now. But with such massive dividend yield and low valuation, how could it not? Currently, the name pays 7.3% yield – a huge yield compared to fixed income and most other dividends. In addition, shares are traded at just 9 times this year’s profit estimates. With that said, though, there are some red flags. First, T shares fell sharply this year, falling 27.3% in 2020, while the S&P 500 rose 15.5%. Second, the company has already spent five quarters without increasing its dividends. And finally, it has a ton of debt that hovers around $ 170 billion. Now let’s get this sorted out. The stock fell and flowed approximately between $ 20 and $ 30 in the past five years. In that period, buying below $ 30 generally rewarded shareholders and – without Covid-19 crashing – the shares were gearing up for a move above $ 37 and perhaps rising to $ 40. Of course, the choice not to increase the dividend earlier this month is surprising, given that AT&T is a dividend aristocrat. That said, AT&T has only been increasing its quarterly payout by a penny per share in recent years. So increasing the dividend was more of an effort to keep the streak alive than anything else. Also, at 7.3%, do we really need more income when that extra cash flow could reduce debt? Speaking of debt, AT&T continues to refinance at very low interest rates and intends to divest assets outside its main strategy. The acquisition of the company’s TimeWarner was expensive, but it is a free cash flow machine. This will support debt reduction and keeping your high payment at a reasonable level. Finally, your HBO Max unit is now available through Roku (NASDAQ: ROKU) and is expected to gain significant momentum soon. Gogo (GOGO) Source: EQRoy / Shutterstock.com At the beginning of this article, I mentioned that special cases sometimes create a unique fundamental situation that can influence what I consider one of the “cheap stocks”. I think we have that with Gogo. Often, investors are willing to ignore situations like this – they cover up the price-earnings ratio and maybe look at some revenue growth estimates. In the case of Gogo, stocks could have a very strong 2021, if the catalysts continue to align. The company has essentially two business units: commercial aviation (CA) and executive aviation (BA). However, it recently announced the sale of its CA unit, which contributed negatively to financial results and cash flow. But the risk for Gogo was that the deal would not close early in the first quarter. Well, the company announced earlier this month that the deal was actually closed. At its high, the stock jumped 13.4% in a single day with the news, but has since given up on those gains. It is now trading just under $ 10. Getting rid of the AC unit for free would have been beneficial for Gogo, because of its weight in finance. Getting $ 400 million in cash is vastly better, however. This will allow the company to have some flexibility when cleaning its balance sheet and leveraging the profitable BA unit going forward. 9 Long-term actions for the next decade So, is this a target for travel? Possibly. But even if it isn’t, GOGO’s stock is cheap and worth a closer look. Walgreens (WBA) Source: saaton / Shutterstock.com Going back to cheap stocks in circumstances that are a little less exclusive, however, Walgreens could represent good value for investors. In fact, WBA shares have been stuck in the mud for years, fluctuating as the rest of the market has grown. This is not a big selling point, but it seems that the value is getting very hard to ignore. The stock fell close to $ 33 in late October, just after the gains, before taking off and temporarily releasing $ 44 a month later. Then news of Amazon’s pharmacy plans (NASDAQ: AMZN) hit the wire and both Walgreens and CVS (NYSE: CVS) plummeted. This is typical of the “Amazon is taking over the world” price action. In the end, however, Amazon rarely launches and takes full market share. So, I don’t expect the end of the WBA to happen as a result. That said, the company is poised for modest revenue and revenue growth this year and next. The shares are traded at a minimum of 8.1 times future profits and pay a dividend yield of 4.75%. This leaves some bone-in for investors. Ally Financial (ALLY) Source: Shutterstock This year, the energy sector has been by far the worst performing. Although the financial sector is much better, it is the second group with the worst performance. However, there seems to be some value in many of the individual holdings. Ally Financial is one of those theses – and it is really unique. This is due to both the assessment and the performance of the actions. The shares were hit hard in February, falling about 25% at the end of the month. So, despite the 51% rise from the March low, ALLY’s shares still ended that month significantly below pre-pandemic prices. This shows the volatility observed this year. Since then, however, Ally has recovered for nine consecutive months. This is a rare price, even for the best performing stocks this year. The company has smashed its earnings estimates for the past two quarters and there are still days left to end its last fiscal quarter of 2020. Then the fiscal year 2021 begins, where analysts are asking for 10% revenue growth and profits still best. 7 Undervalued shares that may rise in 2021 Therefore, even though it is at new highs, ALLY seems to be one of the cheapest stocks to buy, being traded at almost 9.2 times future earnings. In addition, shares are traded less than once the book value. As such, more experienced investors should take a look at this name in a dive. Bristol-Myers Squibb (BMY) Source: Piotr Swat / Shutterstock.com Last, but not least on my list of cheap stocks, is Bristol-Myers Squibb. BMY’s shares continue to not receive the credit that I believe they deserve. The current company is the result of its mega-acquisition of Celgene, which Bristol-Myers obtained just over a year ago in late 2019 for $ 74 billion. It was a huge business that generated great value in the long run. Celgene had a low rating, but it was not performing very well, taking that rating even lower. This low valuation is also present at Bristol-Myers, as Wall Street forces the action to “prove”. Well, this company is here to do just that. Like many other names on this list, Bristol-Myers trades at less than 10 times the future profit price. As it involves adding the results of Celgene, comparing the estimates for the current year with those for the previous year is of little use. Instead, let’s look at future estimates. Although the estimates are subject to inaccuracies, analysts expect revenue growth of 9% in fiscal year 2021 and revenue growth of 17%. And given that the company has consistently exceeded profit estimates, perhaps even those numbers are conservative. It also helps that the stock pays a dividend yield of 3.2%. So, will Wall Street reward Bristol-Myers with a higher rating? Who knows. But if it fulfills expectations, the company must bring great value to shareholders. At the time of publication, Bret Kenwell held a long position in T, GOGO, AAPL and BMY. Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. More from InvestorPlace Why everyone is investing in 5G in the wrong way Stock selector reveals his next 1,000% winner New radical battery could dismantle the oil markets The post 7 cheap stocks that can’t wait for 2021 first appeared on InvestorPlace.