The recent seven-day winning streak for stocks took a break this week as investors geared up for the rapid-fire start of third-quarter earnings and reacted to economic data out of both U.S. and China, with the latter’s slowdown remaining a top concern. Investors have been getting a lot of conflicting messages, as I mentioned on MSN last week.
As a result, the conversation turned to whether or not it’s smart to touch stocks that have been beaten down. Is bottom-fishing worth the risk, given the uncertainty? My answer is that there remains a tremendous amount of value in some beaten-down names. If you look in the right places and find the right ones, it’s definitely worth taking a dive.
UAL Stock Is a Perfect Example
United Airlines (UAL) made headlines recently, thanks to a scandal that led to the CEO’s resignation. While a scandal is anything but ideal, it actually breeds opportunity, especially when combined with the broader market landscape.
In fact, this bargain is pretty hard to miss.
While UAL stock has already regained some ground and currently sits around $57, it’s important to remember that the stock was once as high as $74. Shares have lost approximately 15% since the start of the year and remain nearly 23% lower than the 52-week high.
That leaves shares trading for just over eight times trailing earnings and less than seven times forward earnings. Compare that to growth and you’re left with a PEG ratio of just 0.24. Compare price to sales for the trailing twelve months and the ratio is just 0.56.
It’s not just the beaten share price that’s giving way to these absurdly appealing metrics — it’s the earnings growth, too. During the first half of the year, the company’s adjusted profit grew to $1.84 billion from just $430 million during the same period last year.
What to Expect From UAL Stock in the Future
Analysts are optimistic that growth will continue. Estimates for the current quarter, next quarter and next year are all marching higher, with the latest consensus translating to expansions of 64%, 100% and 132%, respectively.
Not too shabby.
Zooming out more, things look solid on the growth front; long-term earnings growth is slated for 20%, hence the aforementioned mouth-watering PEG ratio.
For the cherry on top, while some macro trends (such as China and a potential rate hike) are shaking the market, a different macro trend actually adds to the UAL bull case: Low oil prices are a boon to airline stocks.
Of course, United Airlines is just one example of a pick worth scooping up during tough times. As I mentioned on the show, I also am a big fan of Fiesta Restaurant Group (FRGI) and the financial sector.
The key is to avoid panicking, and keep a close eye out for bargain stocks with strong fundamentals — like UAL.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
