There are always deals to be had in the wake of the holiday season. For one, retailers often look to offload excess inventory after Christmas. But there are also always cheap stocks to buy in January. Now, following such an unprecedented year, the stock market will present opportunities to those shrewd enough to pay attention.
Of course, the world is still in a pandemic. Covid-19 has devastated us globally. But it has also opened up opportunities in many cases.
Our economy has been shaken, but out of that there is money to be made in the stock market as sectors and equities rebound. So, here are seven cheap stocks to buy in January as the new year begins.
- Bristol-Myers Squibb (NYSE:BMY)
- Intel (NASDAQ:INTC)
- Southwest Airlines (NYSE:LUV)
- Aptiv (NYSE:APTV)
- AbbVie (NYSE:ABBV)
- Howard Hughes (NYSE:HHC)
- Disney (NYSE:DIS)
Cheap Stocks to Buy: Bristol-Myers Squibb (BMY)
Pharmaceutical companies live and die by the drugs they can develop and commercialize. To that end, Bristol-Myers Squibb counted seven commercialized drugs which produced over $1 billion in sales within the first nine months of 2020. Additionally, three of those drugs accounted for more than $5 billion each in sales over the same period.
But that doesn’t indicate that BMY stock is cheap. It could very well carry a lofty valuation given its ability to commercialize high-selling drugs. Yet, it doesn’t: its forward price-earnings ratio is 8.19. That ranks above 90% of the company’s peers.
Another important consideration for investors in pharmaceutical companies is patent expiry. Revlimid, BMY’s best-selling drug, will remain patent-protected through 2027 in the United States. Likewise, Eliquis — its second-best seller — has patents protected through 2026 and 2031. Finally, the company’s Opdivo is protected from generic competition through 2026. So, clearly Bristol-Myers Squibb has a strong competitive moat. That makes it one of the best cheap stocks to buy in January.
Intel is not quite the chip manufacturing titan that it used to be — companies like Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD) have certainly taken the spotlight at the forefront of the semiconductor industry.
What’s more, the industry has generally had a great 2020. The iShares PHLX Semiconductor Index Fund (NASDAQ:SOXX) has risen 54.47% over the past one year. Likewise, AMD is up nearly 95% and NVDA is up about 127% in the same period.
But INTC stock has shed some 15% over the same period. Why? For one, the company announced it would delay its new chip manufacturing until 2022. That hurt it significantly. On top of that, companies such as Apple (NASDAQ:APPL) are also likely to start manufacturing their own chips. So, Intel is facing stiffer competition in a historically competitive sector.
While the company may never return to its former stature, though, I think it will certainly rise from its current position. In fact, just one piece of significant positive news will indicate to the markets that it has been undervalued relative to peers.
Right now, INTC stock carries a 9.79 trailing price-earnings ratio while NVDA and AMD carry ratios of 85.49 and 123.93, respectively. That should tell an important story to investors seeking cheap stocks to buy in January, regardless of Intel’s tough 2020.
Southwest Airlines (LUV)
Southwest Airlines might raise a few eyebrows as the next pick on my list of cheap stocks to buy in January. After all, the company has a forward price-earnings ratio that is worse than 95% of industry peers. The company also posted an earnings per share (EPS) loss of $3.01 for the trailing-12 months (TTM). Those two metrics make LUV stock look like a name to avoid at all costs. But we have to keep in mind that 2020 has been a year that has disproportionately affected the airline sector.
Investors who look at the trailing-12 month EPS for industry peers like American Airlines (NASDAQ:AAL) and Delta (NYSE:DAL) will quickly realize that LUV has weathered the pandemic much better. Right now, Delta has an EPS loss of $16.53 and American a loss of $14.
Moreover, all three companies incurred massive losses due to exorbitant cash burn from their grounded fleets. Earnings suffered tremendously as a result. But, while daily passenger throughput is still down significantly, the vaccine news should help numbers start to return.
When it comes to picking a stock for the revival of airlines, then, Southwest is among the most financially sound operators in the industry. It will look cheap this time next year.
Aptiv isn’t on this list of cheap stocks to buy in January just because Wall Street favors it. For one, the company has also posted earnings beats in its recent past quarters. Markets tend to reward stocks that do that.
Of course, though, there are a lot of electric vehicle (EV) players that are unjustly benefiting from the shift toward green vehicles right now. Some valuations look too high, given that many of the names run simply on hype and future promises of profitability. But Aptiv isn’t one of them.
That’s why investors who are interested in EVs but afraid that the bottom might drop out of the market should consider APTV stock. In addition to its steady earnings beats, the company also has big goals beyond EVs. CEO Kevin P. Clark notes,“Aptiv is a technology company that will usher in the next generation of active safety, autonomous vehicles, smart cities and connectivity.”
And Aptiv has fared very well over the pandemic. Through the first nine months of 2020, revenues were a bit down, having dipped 17.7% compared to the same period of 2019. But Aptiv became much more operationally sound this year. Net income rose by 96.2% comparing those same two periods, despite the slightly lower revenue.
Out of the 22 analysts who currently cover ABBV stock and are tracked by the Wall Street Journal, 14 of them consider it a buy. Moreover, their median price sits nicely at $118.50 and their high is $135. Clearly, they certainly feel that Abbvie is one of the cheap stocks to buy in January.
This Chicago-based pharmaceutical company has a few metrics that stick out to me, making it an affordable value stock. For one — from a pure value perspective — ABBV looks good because of its forward price-earnings ratio of 8.6. That’s 86.9% above its industry peers.
Secondly, although Abbvie isn’t particularly financially strong, it is capital efficient based on its weighted average cost of capital (WACC) versus its return on invested capital (ROIC). The company’s WACC is -5.44% and its ROIC is 26.67%. So, it’s clear that Abbvie knows how to create value from the capital it possesses.
Finally, Humira is the pharmaceutical company’s cash cow. While the drug is facing competition, it still reported a Q3 sales increase of 7.7% in the United States, despite a 9.3% decrease internationally. Plus, ABBV will maintain U.S. patents on Humira through 2022 and anticipates sales declines from biosimilar drugs in 2023.
So, this company has a strong pipeline and may very well thrive into 2023. At the very least, it looks like Abbvie will be a strong and affordable investment until then.
Howard Hughes (HHC)
Howard Hughes develops and operates planned communities and mixed-use properties. The company has 12 large communities under its control across the United States, in major cities like Chicago, New York, Honolulu and more.
Although the company has seen an overall decrease in operating income from its assets through the first three quarters of 2020, there is good news. HHC’s largest operating asset business — office real estate –experienced a 39.1% increase in operating income in the same period of 2020. Office real estate accounts for over 60% of the company’s operating income.
Of course, Howard Hughes experienced significant disruptions in its retail and hospitality sectors in 2020 for obvious reasons. Surely these will remain hampered for the first half of 2021. However, the company can look forward to a turnaround sometime thereafter as the population becomes increasingly vaccinated. That means there’s a nice boon in store for HHC stock, landing it on this list of cheap stocks to buy in January.
Last on my list of cheap stocks to buy in January is DIS stock. Of course, it’s fairly easy to understand the major problem that hurt Disney this year — its theme parks got hammered as the pandemic forced shutterings throughout 2020. The company succinctly summarized this issue in its Q3 earnings report:
“The most significant adverse impact in the current quarter and year from COVID-19 was approximately $2.4 billion and $6.9 billion, respectively, on operating income at our Parks, Experiences and Products segment due to revenue lost as a result of the closures or reduced operating capacities.”
However, the company has done well in 2020 in other ways, namely streaming. Disney anticipates that its already large 86.8 million strong subscriber base will swell up somewhere between 230 million to 260 million by 2024.
Perhaps the company will shift its asset base to include a smaller mix of theme parks in the future. The pandemic certainly made the business risks of in-person entertainment clear. Regardless, though, Disney will see a surge in revenue in 2021 from both the recovery of its parks and its growing streaming platform. That will bolster the already hot House of Mouse.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.