With the Dow Jones Industrial Average notching a new all time high and possibly breaking out over 30,000, many analysts and investors are asking if stocks have run too far, too fast in 2020.
The word “overvalued” is being thrown around a lot these days. And while many stocks appear to have run out of gas, there are still a number of great stocks that remain comparatively cheap and still offer real value for shareholders.
Here are 7 cheap stocks to to buy today for big value tomorrow:
- Ford Motor Company (NYSE:F)
- Bank of America (NYSE:BAC)
- Micron Technology (NASDAQ:MU)
- Altria Group (NYSE:MO)
- Western Digital (NASDAQ:WDC)
- Sirius XM Holdings (NASDASQ:SIRI)
- Ambev (NYSE:ABEV)
Cheap Stocks To Buy Today: Ford (F)
Investors have been waiting for F stock to turn around so long now it seems like you can jinx the share price just by mentioning the word “breakout.” But after years of disappointment, Ford stock finally seems to be trending in the right direction. Share price has more than doubled from its March low of $4.01 a share (up 117%) and F stock now trades around $9.
The current level means Ford shares are still incredibly cheap at less than $10 apiece. But there appears to be a lot of value and momentum in the company today, with management working overtime to turnaround what was once the dominant automaker in the world.
Ford is in the midst of a multi-year turnaround effort. And consumers seem excited by the fully redesigned F-150 pick-up truck, the new Bronco model and a Mustang Mach-E electric sport utility vehicle that Ford has rolled out in recent months.
After heavy investments and re-configurations, the company’s efforts seem to finally be paying off. The company reported a big jump in profit in the third quarter. The automaker earned $2.4 billion in the three months ended in September, up from $425 million for the same period a year earlier. While it lost money overseas, the company’s North American operations and its credit division are firmly in the black. Ford also pays a strong 7.6% dividend yield, and management has committed to keeping it in place.
Bank of America (BAC)
Bank of America must be doing something right to attract the interest of Warren Buffett. Although the Oracle of Omaha has reduced his holdings in most bank stocks this year, he dramatically increased his position in Bank of America. In fact, this past summer Buffett bought $2.1 billion of Bank of America stock, increasing his stake in the financial institution to nearly 12%. Buffett’s holding company, Berkshire Hathaway (NYSE:BRK.B), now owns more than a billion shares of BAC stock worth $27.65 billion.
Why the vote of confidence? There’s no doubt that Buffett likes that Bank of America’s stock is relatively cheap at $26.75 a share, and he probably also sees the stock as a bargain given that it remains 25% below its 52-week high of $35.72 a share.
However, Buffett also likely appreciates that Bank of America, under current Chief Executive Brian Moynihan, is pursuing a strategy of responsible growth, lending mainly to high-quality credits and prime consumer customers. That focus on slow but steady growth and increased cost efficiencies have led to strong profitability at Bank of America. That in turn has allowed the company to return cash to shareholders via repurchases and solid dividend growth, two things Buffett is likes a lot — especially regular and rising dividend payments.
While many U.S. banks may have had to cut their dividends during the pandemic, Bank of America’s 2.84% dividend remains firmly in place thanks to responsible management. Bank of America is currently trading at just 0.9 times book value and 12.2 times next year’s earnings estimates. That’s cheap for arguably America’s safest bank. BAC stock is worth checking out.
Micron Technology (MU)
Micron Technology is a rare breed of stock. It’s an affordable value stock that offers shareholders exposure to cutting edge technology trends such as 5G, artificial intelligence (AI) and the Internet of Things (IoT).
Micron today is a leader in producing DRAM memory and one of six large producers of NAND flash storage. Both are key building blocks of computing and storage, and poised to grow exponentially in the coming decade. Micron’s management team forecasts that demand for DRAM will grow in the high-teens while NAND flash demand is expected to grow 30% annually between now and 2030.
Pretty impressive. So why isn’t MU stock a high flyer like other tech leaders?
Micron Technology and other companies in the same industry suffered a downturn starting in 2018 when the U.S.-China trade war began in earnest. Demand suffered just as things began to accelerate for the industry. Covid-19 has only served to prolong that downturn. Yet both problems look set to ease in 2021, with a Covid-19 vaccine coming and U.S. president-elect Joe Biden likely to reset relations with China.
And with demand for 5G, AI and IoT set to explode, MU stock should benefit. The stock is currently very cheap at $62.13 a share. It currently trades at just 13.8 times 2021 earnings expectations and 4.3 times its 2018 earnings per share (EPS).
Altria Group (MO)
Tobacco stocks aren’t really in vogue these days. They continue to be beaten down by government regulations and investors seem more interested in cannabis stocks, the shiny new thing on the block. That’s too bad because some tobacco stocks remain extremely cheap and offer real value to investors.
Case in point, Altria Group, which currently trades at roughly nine times 2021’s earnings per share (EPS). At its current price of $40 per share, MO stock remains 23% below its 52-week high and is only now recovering from its March lows suffered during the Covid-19 market crash.
Moving forward, Altria is taking steps to broaden its appeal and diversify its offerings, notably with smokeless products such as the “IQOS” heated tobacco system. The company has also invested $1.8 billion in Canadian cannabis producer Cronos Group (TSE:CRON) in an effort to enter the market for legal marijuana. Altria aims to develop and market a variety of cannabis vaping products.
All of this is occurring at the same time Altria Group continues to manufacture and sell its core tobacco products. MO shareholders should also like that Altria provides its shareholders with an 8.5% dividend yield. That all makes Altria Group worth a look from investors.
Western Digital (WDC)
WDC stock can currently be purchased for less than seven times next year’s earnings per share (EPS), making it extremely cheap and attractive. The computer hard disk drive manufacturer and data storage company’s share price is in the process of recovering from its March low, but still has a long way to go. Western Digital stock is currently trading at $42.74 a share, down about 40% from its pre-pandemic 52-week high of $72 a share.
Uncertainties related to retail demand for Western Digital products during the pandemic depressed the stock price. Western Digital also suspended its dividend to focus on paying down debt, which turned off many investors. However, a comeback looks imminent.
Businesses shifting their data and storage to the cloud should be a hefty long-term driver for Western Digital. The pandemic has only accelerated the shift to the cloud. In addition, the aforementioned NAND flash memory, of which Western Digital is a leading manufacturer, should become a staple in cloud computing data centers — another win for the company.
NAND flash focus in the data center space could result in large revenue streams for Western Digital over the next decade. More immediately, Western Digital continues to play a leading role in providing storage solutions for gaming consoles. With new PlayStation and Xbox consoles being released this year, Western Digital is set to cash in during the ongoing fourth quarter and well into 2021.
Sirius XM Holdings (SIRI)
Despite having a near-monopoly, satellite radio provider Sirius XM Holdings has been stuck in neutral for the past five years. Today, SIRI stock trades for $6.45, the same price it was at in 2018. While the stock has bounced 45% off its March low this year, it remains incredibly cheap and barely above the $5 penny stock threshold.
However, there is reason for shareholders to be optimistic that 2021 may finally be the year when Sirius XM stock breaks out in a big way. And while the share price has been slow to move higher, Sirius XM Holdings is consistently profitable and valued today at $26 billion. Plus this company bought back $2 billion worth of its own stock to take advantage of 2020’s modest pandemic-induced price decline. These are all reasons why Warren Buffett owns 50 million shares of the company.
Other reasons things are looking up for SIRI stock include the fact that the company is now in the process of finalizing its 2018 acquisition of Pandora, which has the potential to spark some serious revenue growth. Even without Pandora, Sirius XM added 1.1 million new subscribers in 2019, for a total of 30 million paying subscribers around the world.
The company’s strategy of partnering with auto manufacturers to pre-install Sirius XM radio in new vehicle models before they are sold should help keep subscriptions robust and hook new listeners. Plus, it looks like radio legend Howard Stern will sign a new contract for 2021 that will keep him on Sirius XM for years to come.
ABEV stock is recovering, but hasn’t yet fully rebounded, from its March low. Savvy investors should view the current share price as a buying opportunity given the Brazilian brewing company owns many of the world’s top beer brands, including Budweiser, Stella Artois, Modelo Especial, Hoegaarden and Busch.
A subsidiary of Anheuser-Busch InBev (NYSE:BUD), Ambev is a lot like its parent company, but focused on markets in Brazil and throughout Latin America. With a market value of $40 billion, a dividend of 4.6% and its bevy of global brands, ABEV is a cheap stock that offers real value to shareholders.
ABEV stock has also been moving higher in recent weeks, including a one-day increase of more than 7% on November 9. The move was prompted by analyst upgrades of the stock following recent quarterly results that saw the company report profit of $1.52 billion and revenues increasing to $2.9 billion. In addition, ABEV has free cash flow of $1.33 billion and its Earnings Before Interest Taxes Depreciation and Amortization came in at $913.45 million which compares favorably with other brewing giants.
On the date of publication, Joel Baglole held a long position in BRK.B.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.