Like bargains? Granted, a bargain is only worth buying if it’s something you actually want. When the price is right and the product means something to you, though, back up the truck.
The premise applies to investing as well. While relatively low-priced stocks haven’t exactly kept up with growth stocks in recent years, that’s largely due to persistently low interest rates that have risen to 15-year highs in just the past few months. The next several years could favor value stocks over growth stocks.
With that as the backdrop, here’s a closer look at three cheap stocks to consider buying right now, while they’re still relative bargains.
1. Taiwan Semiconductor Manufacturing
Trailing P/E ratio: 14.1
Forward-looking P/E ratio: 16.5
Last year’s pullback from Taiwan Semiconductor Manufacturing (TSM) shares makes sense on the surface. Most tech stocks were routed in the wake of brewing economic weakness.
But investors threw the proverbial baby out with the bathwater.
Taiwan Semiconductor Manufacturing manufactures semiconductors and microchips for technology outfits that don’t want to spend time or money doing so themselves. Apple, Advanced Micro Devices, and Qualcomm have historically ranked as some of its biggest customers.
Supply chain disruptions linked to the COVID-19 pandemic called such relationships into question, however, so much so that several major technology names are now taking more production matters into their own hands — or at least bringing them closer to home. For instance, Qualcomm has committed to $7.4 billion worth of purchases of chips made at GlobalFoundries‘ New York factory, while Intel intends to shell out $20 billion to build two new chip manufacturing facilities in Arizona. Apple is also looking to source more domestically made silicon.
It all bodes poorly for Taiwan Semiconductor Manufacturing, which is the world’s biggest contract manufacturer of microchips.
What’s being overlooked is how much time and trouble it will be for the tech industry’s titans to simply quit using third-party manufacturers and start making enough of their own chips to satisfy demand. Roughly two-thirds of the world’s semiconductors are made in Taiwan, with most of those coming from Taiwan Semiconductor Manufacturing itself.
And, even if other production hubs do start to take shape outside of Taiwan, this company is still heavily involved. Taiwan Semiconductor Manufacturing already earmarked $40 billion to build production facilities in Arizona, making it less of a competitor and more of a partner with the U.S. tech giants that want to ease their reliance on overseas manufacturing.
2. Citigroup
Trailing P/E ratio: 7.3
Forward-looking P/E ratio: 8.9
It’s not exactly unclear why bank stocks have been such poor performers of late. Although higher interest rates raise profit margins on loans, those higher interest rates also discourage consumers and corporations from borrowing money in the first place.
The subsequently weakening economy also poses repayment risks for lenders. Never even mind the fact that corporate fundraising (public offerings, debt issuance, etc.) may never see another banner year like 2021’s. Citigroup’s (C) investment banking revenue was more than cut in half last year.
This stock’s sellers, however, arguably overshot their target.
Don’t misunderstand: This year’s expected to be a tough one. The analyst community is calling for last year’s bottom line of $7.08 per share to slip again, reaching $5.85. Priced at less than 9 times this year’s projected profits, however, the worst-case scenario is more than priced in.
Here’s the clincher: The stock’s current dividend yield of just under 4% is the best yield among all the major names in the banking business.
That’s a dividend, by the way, that’s more than affordable and was regularly being raised prior to the COVID-19 pandemic. The annualized payout of $2.04 per share is only about a third of this year’s expected, suppressed profits. Citigroup shouldn’t have any problem paying it. S&P Global‘s Market Intelligence arm even thinks Citi will finally raise its payout again this year.
3. Pfizer
Trailing P/E ratio: 8.5
Forward-looking P/E ratio: 10
Finally, add Pfizer (PFE) to your list of cheap stocks to buy right now — while you can still step into it for little more than a song.
Last year is a tough one for Pfizer to follow, and analysts don’t think it will. Per-share earnings are expected to fall more than 30% on a 26% top-line tumble, mostly on the heels of the pandemic’s wind-down as governments cut new orders of the vaccine and work through their current stockpiles. The thing is, the stock’s price may have already reflected this slowdown when the company confirmed it on Jan. 31. Shares are currently priced nearly 30% below their late-2021 peak, and remain within sight of the 52-week lows reached in October of last year.
What’s not being considered by investors is where Pfizer will stand once COVID-19 is all the way in the rearview mirror. CEO Albert Bourla commented during the company’s fourth-quarter earnings call that Pfizer anticipates annualized sales growth of at least 6% between 2025 and 2030, and that’s without any FDA approvals of the most promising drugs in its pipeline like its hemophilia treatments, cancer therapies, and its oral GLP-1 candidate to combat obesity.
Even if only a few of them are approved, Bourla believes the company’s top line could actually grow at an average clip of 10% during the time frame in question.
Whatever’s in the cards, this stock’s compelling, while its price/earnings ratios are almost as low as they’ve been at any point in the past decade.
— James Brumley
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Source: The Motley Fool