The recent bear market has unveiled some incredible bargains in the market. Call it a stock market white sale.
Most of these companies are in areas that weren’t loved by the bull market, like industrials or financials, but there are also tech companies and even an entertainment giant in the remainder pile.
All the following stocks now sport price-to-earnings multiples under 12, and we’ve carefully picked through those with fat dividends that should be payable out of earnings going forward, for conservative investors of discriminating tastes.
Happy bargain hunting.
Ameriprise Financial (AMP)
Dividend Yield: 3.4%
Ameriprise Financial (NYSE:AMP), the Minneapolis-based asset management company spun-out of American Express (NYSE:AXP) in 2005, was trading at $104 per share on Dec. 27. This came after a drop of 25% in one month, which helped wipe out two years of gains in the stock.
The result, however, may be tempting to bargain hunters. It has a trailing price-to-earnings ratio of just 9.2 despite a 90-cent-per share quarterly dividend yielding 3.4%. The problems with the stock have yet to show up in the financials, with revenue continuing to grow at a slow and steady pace while earnings had already exceeded 2017’s $1.48 billion in three quarters.
The problems at Ameriprise are general throughout the asset management sector. AllianceBernstein (NYSE:AB) is down almost 20% and Franklin Resources (NYSE:BEN) is down 17%. There is an assumption in the market that the next recession will see all such middlemen replaced by computers, but it’s an assumption that has yet to appear in the results.
Ameriprise continues to advertise heavily and recruit new advisors, avoiding headlines, sticking to its knitting. In a defensive market, sticking to your knitting and avoiding the headlines may be a good idea.
Annaly Capital Management (NLY)
Dividend Yield: 12.2%
Annaly Capital Management (NYSE:NLY) is a Real Estate Investment Trust (REIT), required to pass most profits to shareholders.
At its opening price near $10 per share, the company had a trailing P/E of just 4, and a yield of over 12%. The company has been delivering more than half its revenue to the net income line for the last two years, but beware. When the market turns, so do the results. In 2014 Annaly lost around $842 million on revenue of just $175 million.
Annaly’s business is to buy short-term money and invest it in long-term instruments like mortgages. The flattening yield curve may be behind the stock’s drop of 20% during 2018.
This risk has analysts very skittish about Annaly, with most sitting on a neutral “hold” rating. But the momentum lately has been moving to the buy side, as income investors continue to enjoy net income that’s mostly guaranteed by the government , and plenty of it, and as mortgage rates continue to rise.
British American Tobacco (BTI)
Dividend Yield: 8.1%
At its opening price of about $31 per share, British American Tobacco (NYSE:BTI) seems to be selling at a P/E of under 2, but looks are somewhat deceiving.
The company recorded a $22 billion gain last December after completing the purchase of Reynolds American, taking the equivalent of a $12.4 billion tax credit ahead of the 2017 tax cut. Even taking that out, however, the company should earn $9 billion in 2018, which would be a P/E of about 8.5. Plus, there’s a quarterly dividend of over 68 cents per share, yielding over 8%.
If you can stand being in the cigarette business, those are incredible numbers. British American uses British pounds in most of its financial calculations. But it usually brings 20-25% of revenue to the net income line.
Brokers continue to pound the table for tobacco stocks like British American, to no effect. The shares are down about 50% for 2018, despite the dividend, and all the restructuring management has gone through in order to maximize profits.
Ford Motor (F)
Dividend Yield: 7.5%
This morning, Ford Motor (NYSE:F), the auto maker, opened for trade at $7.53 per share. That’s a trailing price to earnings ratio of 5, based on its expected 2018 earnings of $1.28 per share. The 15 cent per share dividend now yields over 7.5%, against a 30-year government bond yielding about 3%.
Ford has been in the bargain bin for many years. Despite not taking the auto bailout after the Great Recession, it has gotten no love from investors, and consistently sells for less than 10 times earnings. In the last five years, the equity has lost 50% of its value, and it’s down almost 19% just in the last month.
Still, 7.5%! It’s the kind of number that makes an income investor’s heart beat faster. Ford can afford that dividend, with and expected $1.33 per share in 2018 against a 45-cent-per-share payout. Investors just don’t like the future of internal combustion engines, or CEO Jim Hackett’s plan to stop making cars and invest heavily in heavy duty trucks, SUVs and all-electric vehicles.
Lam Research (LRCX)
Dividend Yield: 3.2%
Lam Research (NASDAQ:LRCX) helped lead the chip-making sector lower in 2018, losing 35% of its value, including a 16% drop in just the last month.
At just over $139 per share, that leaves investors with a price-to-earnings ratio under 10 and a quarterly dividend of $1.10 per share, more than double the rate of March, that now yields over 3.5% and is covered by earnings more than three times. Analysts are expecting a similar performance when earnings are announced Jan. 23, with$3.67 per share expected.
Investors see a collapse in the semiconductor sector that may have already passed by. The company’s decision to increase the dividend as chip sales were rolling over was done to inspire confidence. The company bounced its CEO early this month without severance but that may be a good thing. Needham Research recently launched coverage of Lam with a buy rating.
Semiconductors are no longer the bleeding edge of technology, but an essential ingredient to growth. Analysts have grown more pessimistic recently but 15 of 23 still have it on their buy lists, and none has suggested selling.
Morgan Stanley (MS)
Dividend Yield: 3%
Morgan Stanley (NYSE:MS) opened for trade today at about $39 per share. That’s a P/E of 9.7 and, with its 30 cent per share dividend, a yield of 3%.
The shares were down 25% in 2018 because profits are down. But profits are only down 12%, with net income for the September quarter alone of $2 billion, $1.17 per share fully diluted.
Morgan Stanley continues to skate on the fine edge of the law, recently paying $10 million in fines over money laundering, but the fines are small enough that the bonus pool for dealmakers and traders is being increased, as revenue in those areas is up 17%.
What has caused the stock’s 9% drop in the past month is simply fear, as is true for the rest of the market. If those fears prove unfounded, or overdone, today’s buyers are getting a great bargain.
Synchrony Financial (SYF)
Dividend Yield: 3.5%
Synchrony Financial (NYSE:SYF) is a credit card bank that was spun out of General Electric (NYSE:GE) in 2014. At its opening price of $23 per share, the stock was selling at just 7.4 times earnings despite a 21 cent per share dividend yielding 3.6%.
The December stock sell-off only slightly accelerated Synchrony’s horrible 2018 performance, and it is now down almost 43% on the year. That puts it slightly below its first 2014 trade of $23.10. Its peak at the start of 2018 was at over $40.
Still, Synchrony is still expected to earn 88 cents per share during the current quarter when it reports Jan. 18. Investors have ignored its 10-year agreement to handle Paypal Holdings (NASDAQ:PYPL) credit cards and receivables, as well as its acquisition of gifting services company Loop Commerce.
There is an assumption that consumer credit is going to be a terribly place to be in 2019, but if it’s not, this could be a great stock to be in.
Toyota Motor (TM)
Dividend Yield: 3.4%
Toyota Motor (NYSE:TM) has been the strongest player in the automotive group, but that’s like calling someone the best player on the New York Mets. The 1962 Mets.
At its opening price of about $115 per share Toyota was selling for just over 7 times its earnings and was yielding almost 3%. The shares were late to the bear market party, losing almost 10% of their value after Dec. 19 after holding strong since September.
Toyota earnings are more than twice the dividend and fiscal 2018 sales were a record $267 billion, twice those of any U.S. car maker. I own two Toyotas, and they’re so reliable even old ones are regular targets of thieves. (Full disclosure. I’ve been buying Toyota cars exclusively since 1992.) The decisions by U.S. makers to abandon cars should improve sales further, and Toyota has four U.S. manufacturing plants, helping it avoid any trade war.
Still, this is a slow-growth stock in an unpopular part of the market. The company is focused on safety ahead of autonomous driving and, while its Prius hybrids are the top-sellers in their class their sales have been falling and it’s still trailing in all-electrics.
Dividend Yield: 3%
Viacom (NASDAQ:VIAB) is the cable company behind MTV, Nickelodeon and Comedy Central, and the owner of the Paramount movie studio. It has been gutted by the streaming trend and a long-running boardroom saga.
As a result, the stock now has a price-to-earnings multiple of just 6, and its quarterly 20-cent-per-share quarterly dividend yields 3%. The company’s earnings, however, are nearly five times the dividend. There is also over $1.5 billion in the bank, meaning its valuation ex-cash is under $9 billion, just 75% of its annual revenue, extremely low for a broadcaster.
The stock is now controlled by Shari Redstone, whose 95-year-old father Sumner built the company, and she wants to combine it with CBS (NYSE:CBS). But the Redstone stake remains tied up in court, leaving the company rudderless.
If Viacom can be extracted from its own boardroom drama its assets could still fetch a high price. Even at the current price you have a solid dividend backed by earnings. It takes patience to await a payout that may be less than expected, but you will still be paid to wait.
Western Digital (WDC)
Dividend Yield: 5.3%
Today Western Digital (NASDAQ:WDC), which makes traditional disk drives as well as chip-based drives for consumers and data centers, was selling for just 5 times its expected 2018 earnings of $7.02 per share, but also paying a quarterly dividend of 50 cents yielding over 5% at its opening price of $36 per share.
The shares had plunged nearly 28% in a month, against a Nasdaq fall of 12.5%, as investors worried about sagging demand for disk memory, falling prices for memory chips, and Western’s dependence on Asian manufacturing.
The worries are real but may well be overdone.
Western Digital had $4.6 billion of cash in the bank at the end of September and covered its dividend three times with its $1.71-per-share of third-quarter earnings. Failing to meet its earnings estimate of $1.28 per share on Jan. 24 would be sad, but not tragic.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.