The stock exchange continues among the greatest, longest bull runs in memory. And for numerous reasons, the market has also been “expensive” by over one valuation step for quite some time. While that doesn’t guarantee that any sort of correction or crash is imminent — the marketplace has been expensive for a few years you may be looking for a larger margin of safety which can be found with value stocks.
With that in mind, we chose to have a deeper look at value. Three of our investors identifiedÂ StarbucksÂ (NASDAQ: SBUX),Â International Business MachinesÂ (NYSE: IBM), andÂ Micron TechnologyÂ (NASDAQ: MU) as not only trading for a good value at recent prices, but also worth buying. Keep reading to learn the reason why they made these 3 investors that are successful the cut.
Starbucks is cheapÂ
Jason HallÂ (Starbucks): Trading for less than 17 times forward earnings, Starbucks is as economical as it’s been in a really long time. And for good reason, because the java giant has fought to continue growing sales in its massive U.S. business over the last year. These battles resulted in the organization’sÂ Â lowering its own long-term expectations, dropping same-restaurant sales — also known as comps — expansion advice to 3%-5% on a consolidated business after decades of steadily providing 5 percent-plus comps growth.Â Â Simply speaking, it is because Starbucks can not count on its own U.S. company delivering 5% or better comps basis going forward. Over the past year, it has been 2%-3%.Â Â And while that’s a very good number for most retailers, the market has turned into unwilling to pay as much of a premium. As of the writing, Starbucks’ stock is down 13.3 percent from its all-time large.
However, I feel that the industry is ignoring a wonderful chance to invest in the next period of Starbucks’ growth. Last year, the company took charge over its whole mainland China operations by a franchise partner, and it controls its own destiny in what is likely to turn into a much larger market than the U.S. for the company. That is aÂ Â deal.
Combined with its growth drivers, including non-coffee beverages, meals, and Roastery and Reserve shops, Starbucks’ prospects are as excellent as ever. In the current share price, you can purchase that growth potential for a value that is very great.
Three letters are all you need
Dan CaplingerÂ (IBM): The technology industry has been red-hot recently, but one player that has largely gotten the cold shoulder is IBM. After successfully pivoted from a heavy duty hardware focus in the 20th century to adopt the movement toward software and solutions in the early 2000s, Big Blue nevertheless failed to keep up with the accelerated pace of innovation among major technology giants. The result has been stagnant performance that puts a valuation of just 12 times forward earnings on IBM stock.
IBM also has a great deal of promise in the coming year. Most investors expect the company to go back to earnings growth after five years of falling top-line performance. A few of those profits will come from the launch of new mainframe systems, starting a brand new product cycle which should drive some incremental profits. Yet the larger potential comes from applications like the Watson artificial intelligence initiative, which might help revolutionize industries across the corporate spectrum. For instance, healthcare is a promising area for AI research, together with care management, drug research, clinical trial logistics, and optimizing choice of available treatments for key ailments all posing chances for IBM to put its own technology to better use.
IBM still has plenty of competition, therefore its success is far from ensured. Nevertheless at an attractive valuation, Big Blue offers.
Danny Vena (Micron Technology): Unless you’re a techie, you’ve likely never heard of Micron Technology. The semiconductor company is among the world’s biggest producers of DRAM and NAND flash memory chips. Micron continues to be on a roll, with its share price up 87.
Despite this rally, Micron still trades at a discount. From a price-to-earnings standpoint, the semiconductor business sports a trailing-12-month multiple of 11 for the fourth quarter of 2017.Â Â Micron, on the other hand, is priced at only six times trailing earnings. Its forwards multiple is even more appealing at just four times forward earnings. What’s causing this bearish take?
Previous boom or bust cycles and price wars in the industry have given way to decreased production capacity, and prices for the company’s memory chips have jumped. Investors have been hesitant to adopt this new reality, fearing a return to the cycles of yesteryear.
Memory employed in the Internet of Things, the fields of artificial intelligence, and cloud computing have pushed demand for the company’s core chips.
These current revolutions have contributed to fortunes for the chipmaker.Â Â For Micron’s financial 2018 first quarter, the company reported revenue of $6.8 billion, an increase of 71 percent over the prior-year quarter, beating consensus estimates of $6.45 billion and Micron’s own prediction of $6.1 billion to $6.5 billion. Net earnings grew to $2.68 billion, up nearly 15 times year over year. Adjusted earnings of $2.45 per share beat consensus estimates of $2.20 per share and beat Micron’s prediction of $2.09 to $2.23 per share.Â Â Shipments to cloud and enterprise customers jumped 50% year over year.
Get this chipmaker before the market adopts the new paradigm.