Stocks trading at low and discounted earnings multiples can sometimes be value traps. But sometimes it is simply due to short-term and temporary factors that the stocks do not perform well. In these situations, there are opportunities for investors to score great deals in the market.
Three stocks that bargain hunters might want to consider buying today are: AbbVie (NYSE: ABBV), Verizon Communications (NYSE: VZ)And PayPal Assets (NASDAQ: PYPL)Even though these stocks have underperformed the market this year, here’s why you still want to buy them.
1. AbbVie
Shares of AbbVie are up about 9% this year. It’s not a bad return, but it’s well below the S&P 500‘s gain of nearly 19%. The drugmaker’s focus on growing its business through internal development and acquisitions is what makes the stock an attractive buy. AbbVie’s business has a bright future.
While the healthcare company faces a challenging road ahead now that Humira is losing its patent protection, AbbVie has a number of powerful products in its portfolio, including Skyrizi and Rinvoq, which together should eventually generate higher peak sales than Humira. By 2025, the company expects to return to consistent growth, with annual growth rates in the high single digits forecast through the end of the decade.
The healthcare stock trades at just 15 times forward earnings. And its price-to-earnings-to-growth ratio (PEG) of 0.5 also suggests this is an incredibly cheap buy for the long term. The 3.6% dividend yield only makes the deal more attractive to investors.
2. Verizon Communications
Verizon is another stock that has underperformed this year, with similar returns to AbbVie. While Verizon’s business is stable and has a lot of consistency, investors simply aren’t eager to buy shares of the telecom giant while interest rates remain high.
This year, the company is on track to meet its guidance for wireless service revenue growth of at least 2%, and its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) to grow between 1% and 3%. Those aren’t great growth numbers, to be sure, but they do imply a fair amount of stability for the business.
And if you’re investing in Verizon, you’re probably doing it for the stability and dividend income. At 6.4%, you can get a yield close to five times the S&P 500 average of 1.3%.
Verizon’s stock is trading at an even lower forward price-to-earnings (P/E) ratio of nine, making it an especially attractive option right now for both bargain hunters and dividend investors.
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3. PayPal Holdings
The worst-performing stock on this list is PayPal, down about 1% this year. The fintech stock hasn’t been a hot buy among investors amid a growing number of payment options to choose from. Add in some soft economic conditions, and it’s starting to become clear why PayPal’s stock hasn’t gained much traction this year.
But I believe that PayPal has built a strong brand over the years that potential investors should not ignore. While there are other options to choose from, its market share in the payments industry remains around 40% as it remains a top payment option for customers and merchants. The company has also launched artificial intelligence tools that can improve the checkout process, increasing efficiency and giving users more incentive to use the platform for payments.
Through 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 9%. As economic conditions improve, PayPal’s growth should also accelerate, given its strong position in the industry.
And with the shares trading at a forward price-to-earnings ratio of 14, there’s a lot of value to be had here for investors willing to buy and hold.
Should You Invest $1,000 in AbbVie Now?
Before you buy AbbVie stock, you should consider the following:
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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
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