Almost everyone hates market corrections — except for value-minded investors, who like to keep some cash on hand to go shopping when stocks go on sale. And after October 2018, they may have just that opportunity.
It takes some real nerve to buy when everyone else says “sell,” but a quality company at the right price can mean a great long-term reward. Here are three value stocks that are worth a look right now: Apple (NASDAQ:AAPL), Atlas Air Worldwide Holdings (NASDAQ:AAWW), and General Motors (NYSE:GM).
Even if you still haven’t bought Apple…
Nicholas Rossolillo (Apple): Quarterly earnings season is crazy. Navigating through the noise to determine why Wall Street reacted the way it did to business results is confounding, and sometimes completely devoid of good sense.
Take Apple’s fiscal fourth quarter ended Sept. 29. I can understand investors’ worry over almost nonexistent iPhone sales growth and weaker-than-hoped-for sales guidance for the iPhone, the flagship product that still dictates Apple’s trajectory over a decade after its debut. Some may also be concerned about Apple deciding it will no longer provide specific unit sales numbers on its devices. That’s also somewhat understandable.
What I can’t understand is the concern over slowing iPhone sales, which have been a reality for some time now. Apple’s response has been to take the high road, increasing the premium image of its smartphones via advanced tech and higher pricing. That strategy — a risky endeavor for anyone other than Apple — has been a resounding success.
Average selling price during the fourth quarter was $793, a 28% increase over a year ago. Recurring sales from services have also been on the rise, up 17% in the last quarter. All of that led to 20% and 41% higher revenue and earnings, respectively, versus the same period a year ago.
Nevertheless, investors decided this time around that the slowdown in units sold was too much, and shares were punished. A quarter ago, pundits were lining up to talk about when Apple would reach $2 trillion in valuation. Now the arbitrary $1 trillion milestone is at risk.
Don’t mind the talking heads. What this means is that long-term and levelheaded investors get to consider scooping up this best-in-class growth-at-a-value stock at a big discount from recent highs. With a one-year trailing P/E of 17.5 and a one-year forward P/E of just 13.7, Apple looks like a real bargain, even if growth starts to slow down a bit.
A survivor in a tough business at a reasonable price
Chuck Saletta (Atlas Air Worldwide): The aircraft leasing business is inherently difficult to compete in. It’s capital intensive, as aircraft can easily cost hundreds of millions of dollars. Yet despite the financial barriers to entry, competition can move spare capacity from where it sits to where it’s needed in a matter of hours simply by flying its equipment around. As a result, it can be incredibly tough for any one company to earn an excessively high return on its capital.
Still, as Atlas Air Worldwide has frequently shown, it is possible to profitably run a business in the industry. The company recently reported quarterly earnings of $1.54 per share, adjusted for one-time events, exceeding the market’s expectations. Despite that profitability, the market’s treatment of Atlas shares makes it an interesting value to consider buying now.
First, along with much of the market, Atlas shares fell in October. In this particular case, they fell to their 52-week lows and have only recently started bouncing back. Second, thanks in part to that decline, it trades at a mere 0.8 price-to-book ratio. The first point makes it cheaper for today’s investors than it was just a couple of months ago, while the second makes it less expensive to buy the company outright than to replicate its asset base.
Because of the nature of its business, it’s unlikely that Atlas Air Worldwide will ever trade at a high multiple to its sales or earnings. Still, the market’s moves in October set up an opportunity for value seekers to consider buying its shares at a decent price in November.
Daniel Miller (General Motors): Many Americans will do traditional retail shopping in November. But if you’re out shopping for stocks this month instead, General Motors is looking like a great value right now. November could be a solid month to take a second look at Detroit’s largest automaker fresh off its strong third-quarter results.
On the last day of October, GM reported profits that topped analysts’ estimates and announced better-than-expected guidance for the fourth quarter. Adjusted EPS checked in at $1.87, an impressive 41.7% gain from the prior year, and well ahead of analysts’ call for $1.26. GM’s third-quarter revenue moved 6.4% higher to $35.8 billion, which also topped analysts’ expectations for $34.84 billion. In summary, at a time when analysts were concerned about higher commodity costs and tariffs, GM managed to report higher revenues, profits, and margins.
November is also a good time to look GM over for a couple of additional reasons. Currently, it trades at a forward P/E of about 6, which makes it incredibly cheap compared with the broader markets. That low valuation has also pushed its dividend yield up to 4.2%.
And GM’s new full-size pickups have just begun arriving at dealerships and should drive average transaction prices even higher in the near term. There’s even near-term upside with the Cadillac brand, which carries higher margins than mainstream brands, as it plans to launch a new model every six months through 2020.
Sure, the North American new-vehicle market is at the top of the current cycle, but GM is cheap and could be a great value stock with its dividend yield and its new trucks coming to market.
Chuck Saletta has no position in any of the stocks mentioned. Daniel Miller owns shares of General Motors. Nicholas Rossolillo owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.