Cheap Stocks That Can 3X: A classic investing axiom holds that at average rates of return, the stock market doubles approximately every seven years.
By finding great companies trading below their intrinsic value, though, it’s sometimes possible to substantially outperform this baseline.
Here are two stocks trading at historically low valuations that have the potential to triple your money in the next seven years.
Facebook parent company Meta Platforms (NASDAQ:META) has faced its share of headwinds over the past year.
The stock has sold off by 47.4 percent YTD, while revenue growth in the first quarter slowed to 7 percent year-over-year.
Earnings per share fell to $2.72 from $3.30 in Q1 2021, a loss of 18 percent. Meanwhile, daily active user growth across Meta’s family of platforms advanced by just 4 percent.
Despite some bleak news, there’s still a great deal to like about Meta.
The fact that the company is still growing on top of its massive 2021 gains is impressive, even if the growth is in the single-digit range.
Despite not posting the massive growth numbers it once did, Meta’s family of social media apps is still an enormously valuable property for generating ad revenues.
Meta’s balance sheet is also a major selling point for the stock as rising interest rates increase the cost of borrowed money. As of its most recent reporting, Meta has no long-term debt and holds a liquid reserve of $43.4 billion.
The company’s free cash flow for the most recent quarter was $8.5 billion. As a result, Meta has more than enough room to invest in new projects without subjecting itself to excessive debt.
There’s also ample potential in the company’s VR metaverse business segment. Reality Labs, the metaverse division of Meta, has effectively doubled its revenues each year from 2019 to 2021.
Although the division is still posting billions in losses each quarter as Meta continues to invest in it, this rapid growth could unlock substantial value for shareholders in the coming years.
If analyst price forecasts hold true, Meta could gain a great deal of ground over the next 12 months. The median target price for the stock is $287.50, up 63.8 percent from the current trading price of $175.56. Such a spike this year or next could set the stage for Meta to triple within the next seven years.
A final reason to like Meta stock right now is its valuation. With a P/E ratio of just 13.3, the social media giant looks exceptionally cheap right now. The five-year average ratio is more than double the current P/E, suggesting that Meta could be both a growth and value play at the current price.
Overall, much of Meta’s future success hinges on the success of Reality Labs and metaverse technology in general. Even ignoring the potential that the metaverse brings to the table, though, it’s difficult to argue with the value proposition of Meta stock.
If metaverse projects allow Reality Labs to grow robustly and achieve profitability, Meta could triple within the next seven years with such a growth boost behind it.
Walgreens Boots Alliance
A much more traditional stock than Meta, Walgreens Boots Alliance (NASDAQ:WBA) is a surprising prospect for tripling over the next seven years.
While Meta will likely grow its way to that mark with technological innovation, Walgreens is apt to arrive there via a combination of steady growth, dividend payouts and being markedly undervalued.
In Q1, Walgreens’ revenue rose to $33.8 billion on analyst expectations of $33.4. This was accompanied by an earnings beat of $1.59 per share against a consensus estimate of $1.40.
Revenue rose from $32.8 billion the previous year, though net income was lower. Same-store retail sales also rose by 14.7 percent year-over-year.
eCommerce proved to be a major source of revenue growth, expanding by 38 percent year-over-year.
One of the key drivers for Walgreens going forward will be Walgreens Health Services.
This set of healthcare programs will allow Walgreens to transition away from dependency on retail sales and take advantage of the growing healthcare market.
The benefits of investments in these programs haven’t been realized yet, but Walgreens Health Services will likely be a major source of growth and revenue for the company over a seven-year time horizon.
Although it has a decent amount of room for growth in the coming years, Walgreens likely doesn’t match Meta’s short-term potential. The median 12-month price target for Walgreens is $48, 15.6 percent above the current price of $41.53. Even the highest analyst target puts Walgreens at $50, a gain of 25.2 percent.
This lack of explosive growth potential is likely due to near-term headwinds. As the pandemic winds down, Walgreens will lose revenue it gained from being a major distributor of vaccines.
Between the time these revenues slow down and the time the Walgreens Health Services investments begin to pay off, the company could see a period of lower growth.
What Walgreens lacks in rapid gain potential, it more than makes up for in value. The P/E ratio for WBA stock is just 5.7, an incredibly low rate in today’s market. This, paired with overall fiscal health and decent growth, makes it extremely likely that Walgreens is undervalued.
Walgreens also offers a considerable dividend yield that can add to its returns. The stock currently pays $1.91 per share, a yield of 4.6 percent. The company is a prominent dividend aristocrat, having raised its payout annually for over 45 years. Barring financial disaster, investors can expect that Walgreens will continue to raise its dividends for the foreseeable future.
Between strong income potential, growth from Walgreens Health Services and likely already being undervalued, Walgreens has at least the potential to 3x in the next seven years.
By that time, the company will qualify as a dividend king if it continues to raise its annual payouts. As a result, Walgreens could be a good stock to buy now and hold indefinitely.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.