With inflation easing and the chances of the Federal Reserve turning to interest rate hikes, a stock market comeback could begin to take shape. There are many ways to play this, but you might want to focus on low-priced stocks instead of diving into meme stocks or even more established growth stocks.
Why? Some analysts say these stocks, also known as value stocks, could outperform growth stocks by the time interest rates potentially start to fall. Also, while rates could fall this year, there’s a good chance they won’t fall back to near-zero levels seen during the pandemic.
Growth stocks, which collapsed in 2021 thanks to rates close to zero, could have more limited recovery potential. Along with the potential for a bigger upside in a stock market rebound, limited downside risk with bargain names in the current macro climate may be wrong as the bear market continues from here.
These seven cheap stocks are more favorable from a risk/reward perspective. Thus, I think long-term investors should consider these companies above other high-growth names right now.
|LEVI||Levi Strauss & Co.||$16.67|
Boyd Gaming (BYD)
Boyd Gaming (NYSE:BYD) operates casinos and other gaming establishments. Boyd’s flagship properties are in Downtown Las Vegas and off the Las Vegas Strip, but the company’s portfolio also includes regional properties across the United States.
Compared to other casino stocks, BYD stock has an attractive price. The company’s shares trade today for just 11.7 times earnings. In comparison, another prominent name in regional casino games, Penn Entertainment (NASDAQ:PENN), sells for 24 times earnings.
Despite trading at a high value multiple (implying limited growth potential), one analyst (Benjamin Chaiken of Credit Suisse) recently argued that Boyd actually has growth catalysts in play, largely due to Boyd’s recent acquisition of iGaming. Interactive Palace. If a downturn in the gaming market is milder than expected and stocks are on track to re-enter a bull market, undervalued BYD could be subject to a significant repricing higher.
In 2022, Ford (NYSE:F) shares fell into the fast lane as investors held back the legacy automaker. However, while this stock may be on a pit stop for the time being, a rebound could occur much sooner than the current market view on the state of the auto market suggests.
Although tailwinds like tight supply and booming demand have started to reverse, that headwind may have become too much of a factor in the F stock’s valuation. Shares are trading today at just 7.5x sell-side analyst forecast for earnings in 2023.
The current view of an auto market crash is proving to be an overreaction. Ford could raise prices simply by announcing better-than-expected results over the next few quarters. As I said earlier this month, Ford’s electric vehicle (or EV) catalyst isn’t going anywhere. This factor could also trigger a big rebound for the F stock.
Up more than 36% over the past month, renewed optimism has had an outsized impact on the performance of Hanesbrands (NYSE:HBI) shares. Last year, fears of a recession, along with the clothing maker’s heavy debt load, led to a massive drop in its share price.
Investors may be starting to realize they’ve overreacted, especially after management released a promising guidance update earlier this month. HBI’s stock has returned to high single digits, but don’t assume it’s capping. Stocks may have plenty of room to continue to rally.
Still with a deep value multiple (8x earnings) and high dividend yield (7.5%), if Hanesbrands continues to pleasantly surprise with its operating performance, HBI stock could continue to climb to a valuation more worthy of the actions of the garment industry. Similar names in the spice trade for between 10 and 15 times the revenue.
Levi Strauss & Co (LEVI)
Among the bargains on this list, Levi Strauss & Co. (NYSE:LEVI) can be a rough diamond. While the current global economic downturn is a major concern for the near-term performance of this famous denim apparel maker, a price/earnings (or P/E) multiple of just 12x is far too low.
Why? Consider the globally recognized brand value of Levi Strauss. The impressive brand image of this company gives Levi a deep economic moat. As the financial challenges dissipate and attention turns to post-recession results, LEVI stock should return to a much higher valuation.
Before the stock market crash, stocks were trading at 15 to 20 times earnings. If Levi Strauss can generate earnings in line with forecasts for 2024 ($1.56 per share), it may not be difficult for LEVI to nearly double its price, from $17 to $30 per share.
Western Oil (OXY)
western oil (NYSE:OXY) performed very well in 2022. This was due to the sharp rise in crude oil prices and the continued buying of stocks by Warren Buffett for the Berkshire Hathaway (NYSE:BRK-A) wallet.
However, more recently, as oil retreated and the “Buffett buzz” surrounding that company died down, OXY stock fell into a slump. Still, if you’re optimistic that economic conditions will normalize this year, now might be the perfect time to buy this cheap stock. Currently, OXY trades for only 5.2 times earnings.
If the global economy improves and China begins its post-pandemic “reopening”, demand for oil (and therefore prices) could continue to rise. Increased profitability could help OXY come back in 2023. Beyond the short term, the success of the company’s carbon capture effort could be another big catalyst for the undervalued oil stock in the course of the next few years.
Like comparable names in its industry, Qualcomm (NASDAQ:COMQ) was hammered by the slowdown in the chip market. Yet unlike many of its peers, shares of this mobile chipmaker have entered bargain territory. How?
Other chip stocks have become cheaper, but still have premium valuations. QCOM shares, on the other hand, are trading at a low 12.8 times estimated forward earnings. This makes it even more affordable than Intel (NASDAQ:INTC), a long-standing “value game” (or “value trap,” depending on who you ask) among chip stocks. INTC is currently trading for 16 times forward earnings.
In a recent interview on CNBC, Qualcomm CEO Cristiano Amon made promising statements regarding the semiconductor industry’s long-term demand outlook and Qualcomm’s move into faster-growing areas such as advanced chips for electronics. ‘automobile industry. These factors could help accelerate the company’s growth and help QCOM return to significantly higher prices.
United Airlines (UAL)
The airline industry has made an amazing comeback after the pandemic. United Airlines (NASDAQ:LAU) is no exception. The former airline now not only generates revenue that exceeds levels reported just before the pandemic.
According to management, UAL’s earnings this year could reach $12 per share, surpassing the $11.58 per share earnings reported in 2019. Investors are beginning to take a “wait and see” approach with UAL shares. With a recession looming, it makes sense that many investors doubt United will continue to take off.
That said, even though this airline is only delivering results in line with expectations on the sell side ($7.63 per share), it’s safe to say that UAL is already in the cheap stock category, with a price/earnings ratio eventually about 6.5 times. As Louis Navellier recently argued, there’s a good chance United will exceed expectations based on current airline demand trends.
At the date of publication, Thomas Niel has not held (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
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