General Motors CEO Mary Barra in a 2016 Chevrolet Camaro.
During periods of extreme volatility, it’s natural for investors to worry about their losses. But as the old saying goes, the time to buy is when there’s blood in the streets, not when everything is coming up roses.
In fact, some claim the full saying — attributed to British banker Baron Nathan Rothschild — is “The time to buy is when there’s blood in the streets, even when that blood is your own.”
With the S&P 500 SPX, +0.26% in the red for the year through Tuesday and the Dow Jones Industrial Average DJIA, +0.16% recently posting two separate drops of more than 1,000 points, stepping up may be easier said than done.
But it’s worth remembering that the stock market never goes up in a straight line, and buying on pullbacks like the current one may provide great returns.
If you’re an aggressive investor looking for a bargain, here are five rather unloved and undervalued stocks that seem to be trading at attractive prices right now.
Retailer Macy’s Inc. M, +2.85% has suffered mightily with a roughly 60% decline in shares over the last three years. There are obvious reasons for this trouble, as e-commerce competition has resulted in chronic revenue declines, but 2018 may be finally the year that shares find a bottom.
Macy’s will release its latest earnings on Feb. 27, and despite recent troubles there is reason to be optimistic. Holiday-season comps actually rose about 1% — nothing to scoff at for a store that has been perpetually challenged to find growth — and strong consumer metrics in 2018 should help this trend persist.
Also, corporate tax reform is tailor-made for this retailer that books almost all its revenue within U.S. borders and paid an effective tax rate of about 36% in the last full fiscal year.
Sure, the long-term charts are ugly. But back before the market hit a snag in late January, Macy’s stock was actually trading at eight-month highs and had surged 50% since early November.
There’s good reason to think that these last few weeks of volatility sent investors scurrying for the exit prematurely and that the stock could revisit those recent highs. With a forward price-to-earnings ratio of about 8 and price-to-sales ratio of about 0.3, it’s safe to say that a lot of negativity is already baked in.
HCA Healthcare Inc. HCA, +0.65% is a hospital operator with two big appeals in this troubled market. For starters, it has big-time scale with 170 hospitals and a $34 billion market cap. And secondly, it’s in the recession-proof sector of health care, which sees strong demand regardless of business or consumer trends.
From a valuation perspective, things look great with a forward P/E ratio of less than 11. And that’s in spite of a red-hot run in 2018 even as the market has melted down; HCA stock is up almost 12% year-to-date while the broader S&P 500 is struggling to get out of the red.
The reason for the resilience is, in part, strong earnings reported in January. These included a 12% jump in revenue to top estimates, a beat on adjusted earnings and modest growth in both admissions and revenue per admissions. The icing on the cake was better-than-expected guidance and the institution of a 35-cent quarterly dividend payable in March.
When you see this kind of growth and this kind of momentum in a troubled market, it’s a great sign. But when you see this along with a forward P/E that low, you need to act before the bargain pricing disappears.
Of course, the health-care sector in general was undervalued last year for good reason as Republicans talked of slashing Medicare and repeal Obamacare. But given failed health-care legislation in 2017 and with contentious midterms right around the corner, don’t expect any big changes to disrupt the sector again anytime soon. The market discounted HCA stock last year, and now is the perfect time to buy at bargain prices.
You’d be forgiven if you’ve given up on General Motors Corp. GM, -1.43% as an investment. For most of 2013 to 2017, the auto maker’s stock pretty much went nowhere. And while it did finally get a lift last year, the 19% gain slightly underperform the 21% or so climb in the S&P 500.
But with shares briefly breaking out of a rut over the last several months and with a great fourth-quarter report behind it, GM is worth a look. And given a forward price-to-earnings ratio that’s less than 7, shares could be ripe for a breakout from these levels.
Just last week, GM earnings beat expectations on the top and the bottom line — including a dramatic surprise on earnings per share, with an adjusted tally of $1.65 over the consensus estimate of $1.39 thanks to strong showing by revamped crossovers including the Buick Enclave and Chevy Equinox. Equally important was a big 22% reduction in unfunded pension liabilities.
Still, despite these results and a generous 3.6% dividend, investors haven’t been interested. The stock still trades at its single-digit P/E. Yet GM generated an enviable $17 billion in net operating cash flow last year, so this is hardly a company that’s in dangerous territory.
Sure, forward sales trends are challenged in the U.S. and the disruption of new autonomous driving technology creates uncertainty. But GM is still a bargain given its fundamentals and valuation, and worth buying on a pullback.
Viacom, Inc. VIAB, +0.67% is another stock that’s not on the radar for many investors right now. It’s a midsize entertainment company at just $13 billion or so in market value, a fraction of megabrands like Walt Disney Co. DIS, +0.71% and Time Warner Inc. TWX, +0.75% It’s also not particularly well-prepared for the streaming era, waiting until its most recent earnings call to announce that it will try to launch its own service this year despite an already crowded market.
Maybe that’s why shares are down more than 40% in the last five years, all while the S&P has tacked on about 70% in profits.
However, Viacom has found a little bit of life despite the broader market’s rocky start to 2018. Shares are up about 7% since Jan. 1 as investors have welcomed the push toward streaming, an all-in move the CFO promised would be characterized by “putting all of Viacom’s assets against this.” That’s on top of better-than-expected profits despite an admittedly challenged top line as management has focused on efficiencies instead of output.
However, a combination of easier comps along with a production ramp from its film arm could provide a lift going forward — as could hopes of a potential merger with CBS Corp. CBS, +2.84%
It all adds up to a decent outlook. And when you consider shares are currently trading for a forward P/E of less than 8, the stock is looking like a bargain at these prices.
Midsize insurance company Lincoln National Corporation LNC, -1.50% is another name that doesn’t exactly lead its industry, lagging giants Prudential Financial PRU, -0.90% and MetLife MET, +1.30% considerably in size, but remains a quality stock trading at a discount right now.
Despite its relatively low profile, there’s a pretty long list of things working for it right now.
For starters, recent earnings showed an impressive double-digit revenue expansion and a 10% increase in operating income thanks to a strong annuities business. The company also recently made a deal to buy Liberty Mutual’s benefits group, which could pay big dividends as efficiencies are found between the two operations. And longer term, the move toward higher rates will assuredly benefit this company as it reinvests premiums paid by customers into interest-bearing assets.
Despite all this, shares trade for a slight discount to book value and a forward price-to-earnings ratio of about 8.
After largely sitting out the rally in 2017, shares finished the year with a bang after tacking on about 16% from Thanksgiving to New Year’s Day. The stock has given much of that back amid recent difficulties, however, so investors may want to consider a bargain purchase before the next leg up.