After some big-time bull movement in the markets this year, things have gotten more choppy, as there have been some notable down days. Let’s face it, valuations have gotten particularly frothy, especially in the tech sector. Because of this, it’s a good idea for investors to get more defensive by considering cheap stocks to buy.
Here are 7 ideal cheap stocks for bargain hunters:
- Cisco Systems (NASDAQ:CSCO)
- NetApp (NASDAQ:NTAP)
- Northern Trust (NASDAQ:NTRS)
- CVS Health (NYSE:CVS)
- JPMorgan Chase (NYSE:JPM)
- H&R Block (NYSE:HRB)
- Pfizer (NYSE:PFE)
It’s true that the recent volatility in the markets could be temporary. But then again, with the election in just under a month, volatility might ramp up. And yes, there are nagging concerns with the U.S. economy. There are indications of a slowing in the growth. Just look at the persistently high levels for unemployment clams.
Cheap stocks to buy: Cisco Systems (CSCO)
2020 has turned out fairly awful for Cisco. The shares have gone from $47 to $39. And that’s despite the fact that many other mega tech operators — like Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) — have done quite well.
Then again, there are some major challenges to Cisco’s business. Just look at the latest earnings report. In the latest quarter, revenues plunged by a grueling 9%. A big part of this has been the impact of the Covid-19 pandemic.
Yet Cisco has taken swift actions, such as by cutting back on expenses. The goal is to reduce annual spending by about $1 billion.
It’s important to note that the sales appear to be more about customer delays on larger orders. Moreover, there are bright spots for Cisco, such as its conferencing business and cybersecurity segment. The company has also been aggressive in moving towards subscriptions.
In terms of valuation, CSCO stock is dirt cheap — at least when compared to its tech peers — with a price-to-earnings ratio of 15. The dividend is also one of the highest in the tech industry, yielding 3.7%.
NetApp is a provider of hybrid cloud data services. By using so-called data fabrics, customers are able to optimize performance of existing IT (Information Technology) infrastructures, improve innovation and get better visibility with customers.
But unfortunately, NTAP stock has been a big laggard this year. The shares have gone from $63 to $44. Even before the Covid-19 pandemic, the company was starting to see a slowdown in its business. There was also the departure of the company’s CFO.
Yet despite all this, NetApp’s problems appear to be temporary. Note that the latest earnings report showed a nice improvement in the business. And more importantly, there are strong secular trends that should power NetApp’s business as data management becomes increasingly important.
The valuation on NTAP stock has certainly gotten to attractive levels. Consider that the price-to-earnings ratio is 12.5X and the dividend is at 4.4%.
Northern Trust (NTRS)
Among cheap stocks to buy, Northern Trust is definitely the oldest. This firm’s origins go all the way back to 1889, when the company started as a Chicago bank. But the firm’s longevity and strength haven’t mattered much for Wall Street investors.
NTRS stock has gone from $105 back in January to $78 at present. Yet this has presented an interesting value opportunity. Currently, the price-to-earnings ratio is 12X and the yield is 3.6%.
So what are the main positive factors going for NTRS stock other than the cheap stock price? Well, the firm has a massive platform, which includes a whopping $12.1 trillion in assets under custody and administration. The business is also diversified across asset servicing, asset management and wealth management.
Over the years, NTRS has invested in digital transformation. With the acquisition of Emotomy, the company got an open-architecture investment advice system. There was also an investment in Parilux. This startup helped with the creation of a sophisticated front office solution to help with asset allocation. Then there have been various in-house projects, such as the development of the Northern Trust Matrix, which is a advanced data-driven platform for making better investment decisions.
Granted, NTRS stock does have its challenges. The low-rate environment has weighed on returns. However, when looking at the valuation of NTRS stock, it seems like much of this has been factored in.
CVS Health (CVS)
CVS stock hasn’t been too healthy this year: the returns are a miserable -21%. Covid-19 meant the company suffered from a reduction in store front revenues and prescriptions.
But the company has a diverse set of businesses. Besides its 9,900 brick-and-mortar stores, the company also has a strong position in managed care with its Aetna insurance business, as well as in the pharmacy benefits industry with Caremark. The result is that cash flows have remained robust.
The big risk with CVS stock is the status of the Affordable Care Act. If rolled back, there would definitely be damage to the business.
But then again, CVS has the advantage of scale. And besides, the healthcare industry has a powerful lobby. It does seem unlikely that there would be a complete undoing of the existing insurance market.
Moreover, CVS stock is already trading at a low valuation of 9.2X times earnings. The dividend is also at 3.4%.
JPMorgan Chase (JPM)
When looking cheap stocks to buy, there are plenty to choose from in the banking sector. Low interest rates have put pressure on margins. There has also been the worry that the recession will lead to outsized loan losses.
But for long-term investors, there are opportunities in the banking sector. The best approach is to focus on the quality names. And one that stands out is JPM stock.
The bank is the largest in the U.S. and number seven in the world, boasting about $2.69 trillion in assets.
So what might be the catalysts? First of all, even a small increase in interest rates could have a material positive impact on the bottom line. Next, the sentiment on Wall Street is downright awful. And finally, JPM is a well-run organization and has several lines of businesses to offset some of the problems like fixed-income trading and investment banking.
As for the valuation on JPM stock, it is at value levels. Note that the price-to-earnings ratio is 7.4X (hey, even with the problems, the company has been able to continue to post decent profits). There is also a dividend yield of 3.7%.
H&R Block (HRB)
When it comes to cheap stocks to buy, one of the biggest risks is technology disruption. Just look at how a company like Amazon (NASDAQ:AMZN) has used its digital platform to aggressively move into various industries.
Now one company that appears to be a target of disruption is H&R Block. After all, will people continue to go to a tax preparer? Won’t the near future be mostly about doing taxes with Intuit’s (NASDAQ:INTU) TurboTax?
Yes, this all does seem reasonable. But the reality is something much different. Keep in mind that the past season does show the durability of the traditional approach. Despite the closure of most of the H&R Block’s branches because of Covid-19, there was only a marginal decline in the assisted business.
It helps that the company has been investing in the modernization of its own technologies. For the most part, H&R Block’s customers have different options, whether it be to use teleconferencing with a tax professional or use the DIY (Do-It-Yourself) app. The omnichannel strategy does look like a winner.
H&R Block is also moving into the small business market. This has been the result of the acquisition of Wave, which is an AI-powered accounting system.
As for the valuation of HRB stock, it’s at only trading at about 12.8X times earnings and the dividend yield is 3.7%.
PFE stock has done very little over the past five years. The shares have gained a measly 8.5% during this period of time.
But things could be changing for the better — and soon. Pfizer is leader in the race to develop a vaccine for Covid-19. A key to this has been a partnership with Germany-based BioNTech (NASDAQ:BNTX), which is an innovator with mRNA treatments.
All in all, the clinical trials are going well and a vaccine may be available within the next couple months. If so, it seems like a pretty good bet that PFE stock will get a boost.
But there are other reasons to be interested in the company. Note that Pfizer has been restructuring its operations. For example, the company is currently spinning off its low-performing Upjohn generics business to Mylan (NASDAQ:MYL).
Pfizer has also been making progress with its drug pipeline. There are promising treatments for categories like Type-2 diabetes, obesity and various cancers.
Regarding the valuation of PFE stock, it is at attractive levels, with the forward price-to-earnings ratio at 14.5X and the dividend yield at 4.1%.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is an advisor/board member for startups and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.