Stocks that are trading at low- and discounted-earnings multiples can sometimes be value traps. But other times, it’s just due to short-term and temporary factors that the stocks aren’t doing terribly well. In these situations, there are opportunities for investors to score some great deals in the market.
Three stocks that bargain hunters may want to consider buying today are AbbVie (NYSE: ABBV), Verizon Communications (NYSE: VZ), and PayPal Holdings (NASDAQ: PYPL). Although these stocks have underperformed the markets this year, here’s why you’ll want to consider buying them, anyway.
1. AbbVie
Shares of AbbVie are up around 9% this year. It’s not a bad return by any means, but it’s well below the S&P 500‘s gains of nearly 19%. The drugmaker’s focus on growing its business through in-house development and acquisitions is what makes the stock a compelling buy. AbbVie’s business has a bright future.
Although the healthcare company is facing a challenging road ahead with Humira losing patent protection, AbbVie has some high-powered products in its portfolio, including Skyrizi and Rinvoq, which will eventually combine for higher peak revenue than Humira. By 2025, the company expects to get back to generating consistent growth, projecting an annual-growth rate in the high-single digits until the end of the decade.
The healthcare stock is trading at just 15 times its estimated future earnings. And its price-to-earnings-to-growth ratio (PEG) of 0.5 also suggests this is an incredibly cheap buy for the long haul. Its 3.6% dividend yield only sweetens the deal even further for investors.
2. Verizon Communications
Verizon is another underperforming stock to buy this year, with similar returns to that of AbbVie. While Verizon’s business is stable, and there’s a lot of consistency from it, investors simply haven’t been eager to buy up shares of the telecom giant with interest rates remaining high.
This year, the company is on track to meets its guidance, which calls for wireless service-revenue growth of at least 2%, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to expand between 1% and 3%. Those aren’t stellar growth numbers by any means, but they do imply a good deal of stability from the company.
And if you’re investing in Verizon, you’re probably doing so for its stability and its dividend income. At 6.4%, you can earn a yield which is close to five times the S&P 500 average of 1.3%.
Verizon’s stock trades at an even lower forward price-to-earnings (P/E) multiple of nine, making it an incredibly attractive option right now for both bargain hunters and dividend investors.
3. PayPal Holdings
The worst-performing stock on this list is PayPal, with its shares down around 1% this year. The fintech stock hasn’t been a hot buy with investors amid a growing number of payment options to choose from. Throw in some soft economic conditions and it’s beginning to look clear why PayPal’s stock has failed to gain much traction this year.
But I believe PayPal has built up a strong brand over the years which potential investors should not ignore. While there are other options to choose from, its market share in the payments industry remains at around 40% as it remains a top payment option for customers and merchants. The company has also launched artificial intelligence tools which can enhance the checkout process, adding more efficiency and giving its users a greater incentive to use its platform for payments.
During the first three months of the year, the company reported a 14% year-over-year increase in payment volume. And net revenue of $7.7 billion also grew by 9%. As economic conditions improve, PayPal’s growth should accelerate as well, given its strong position in the industry.
And with the stock trading at a forward P/E of 14, there’s a lot of good value here for investors willing to buy and hold.
Should you invest $1,000 in AbbVie right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends Verizon Communications and recommends the following options: short September 2024 $62.50 calls on PayPal. The Motley Fool has a disclosure policy.
3 Absurdly Cheap Stocks to Buy and Hold for Years was originally published by The Motley Fool
