- These cheap stocks to buy come from growth and dividend names. All are worth holding in the retirement portfolio for value creation.
- Pfizer (PFE): Undervalued with a robust dividend yield, Pfizer has a deep pipeline of drugs to ensure long-term revenue growth visibility.
- Chevron (CVX): Among the top oil and gas plays with assets that have an attractive break-even. Considering financial flexibility, aggressive investments expected in renewable and non-renewable energy assets.
- Apple (AAPL): This is the best-performing FAANG stock in 2022. Sustained revenue and earnings growth visibility through diversified revenue sources.
- Lockheed Martin (LMT): The top defense stock is likely to benefit from rising geo-political tensions. A strong order backlog provides clear cash flow visibility.
- Rivian (RIVN): In the early stages of growth, but the long-term outlook is promising. A deep correction provides an attractive entry point.
- Pinterest (PINS): Ample scope for upside in international ARPU. With the platform becoming more shopping friendly, Pinterest is a proxy e-commerce play.
- Target (TGT): Strong growth in comparable store sales. Target has an omnichannel presence with significant investments planned in the next few years.
It’s never too early to start retirement planning. The power of compounding can do wonders even if a small amount is allocated every month towards retirement funds. Similar to a dynamic portfolio, a retirement portfolio also needs to be diversified.
Some popular asset classes would include fixed-income securities, gold, equities and blue-chip cryptocurrencies. With equity markets having witnessed a meaningful correction from highs, investors can consider some cheap stocks to buy for the long-term.
Within the equity portfolio for retirement, I would consider holding some growth stocks as well as dividend stocks. In my view, the dividend income can be re-invested to further boost the retirement portfolio returns. Additionally, growth stocks have the potential to deliver multi-fold returns over the long-term.
Let’s take a close look into seven cheap stocks to buy for a rich retirement.
|LMT||Lockheed Martin Corporation||$434.59|
|RIVN||Rivian Automotive, Inc.||$24.30|
Cheap Stocks to Buy: Pfizer (PFE)
Among income stocks, Pfizer (NYSE:PFE) would be among the top picks. PFE stock offers a dividend yield of 3.2% and it’s likely that dividends will increase in the coming years. In addition to this, the stock trades at a forward price-earnings ratio of 7.2. Considering the current valuation, there is scope for capital gains.
Pfizer is not just a Covid-19 vaccine play. The company’s growth and cash flow upside are likely to sustain in the long term. However, it’s true that the vaccine sales have provided a cash bump, which provides ample flexibility to invest in research and development.
For 2022, Pfizer expects revenue of $100 billion, which would imply a year-on-year growth potential of 27%. For the same period, the company expects robust research and development expense of $11.5 billion. With a product pipeline of 96 drug candidates, the company’s revenue visibility is strong.
In the first quarter, the company completed the acquisition of Arena Pharmaceuticals. Further, Pfizer also entered into an agreement to acquire ReViral, which is expected to add $25 billion in risk-adjusted revenue by 2030. Acquisitions are likely to accelerate the growth trajectory over the next few years.
Legendary investor Warren Buffett is known to invest in long-term value creators. In Q1 2022, Buffett was on a buying spree and boosted his holdings in Chevron (NYSE:CVX). The stock is among the top five holdings for Buffett.
Of course, that’s not the only reason to consider CVX stock for the retirement portfolio. Even after a big rally, the 3.4% dividend yield stock looks attractive. Investors can consider buying the oil and gas exploration stock on dips.
With the Russia-Ukraine conflict, the West is looking to reduce energy dependence. There are two ways to achieve this. First, have policies and incentives that help in boosting production in U.S. and Europe. Further, increase investments in renewable energy.
For the first quarter, Chevron reported operating cash flow of $8.1 billion. This implies an annualized operating cash flow of $32 billion. Robust cash flows will allow Chevron to increase dividends and pursue aggressive share repurchase.
More importantly, the company is likely to maintain a high investment expenditure towards renewable and non-renewable assets. The long-term outlook is therefore positive with the company having 88 billion of barrels of oil equivalent (BBOE) in resources. Chevron is also investing in renewable fuel, hydrogen energy and carbon capture. These factors make CVX stock attractive for the long term.
Among FAANG stocks, Apple (NASDAQ:AAPL) stock has been an outperformer so far this year. I believe that at a forward P/E of 24.7, it’s among the cheap stocks to buy for the long term.
Considering the company’s top-line and earnings growth, I would still consider it as a growth stock. At the same time, the company has clear dividend growth visibility.
For the first six months of 2022, Apple reported top-line growth of 10% and earnings growth of 18%. A key point to note in the earnings report is healthy growth in segments like wearable and services. Apple is more diversified with the company having multiple segments that support growth.
Of course, the iPhone segment remains the cash cow. With 5G phones, the segment growth is likely to remain healthy. I also like the fact that Apple is cash rich and it allows the company to make big investments. It’s being speculated that the company will be launching autonomous driving cars by 2025. This is another potential source of revenue diversification and AAPL stock upside.
In the company’s fiscal second quarter 2022, Apple returned $27 billion to shareholders. This level of value creation is likely to sustain with innovation driving growth and cash flow upside.
Cheap Stocks to Buy: Lockheed Martin (LMT)
The escalation in geo-political tensions between Russia and Ukraine is likely to have a long-term impact on global defense spending. Global military spending has crossed $2 trillion for the first time with Europe boosting spending.
In current times, it’s important to have a defense stock in the long-term portfolio. Lockheed Martin (NYSE:LMT) has surged by 31% in the last six months. However, at a forward P/E of 16.3, it’s still among the cheap stocks to buy a rich retirement.
Besides the stock upside potential, LMT stock also offers an annualized dividend of $11.20 per share. As the company’s order backlog swells, there is clear cash flow visibility for higher dividend income. As of Q1, the company’s order backlog was $134 billion.
During the quarter, the company also returned $2.8 billion to shareholders. With a guidance of $6 billion in free cash flow for 2022, Lockheed is positioned to create value.
The company’s F-35 remains the key cash flow generator. International orders have increased for the aeronautics segment. With a bigger addressable market, the company is positioned for stable cash flows. Also, emerging segments like “Space” should increasingly contribute to growth in the next few years.
Rivian Automotive (RIVN)
There has been a sharp fall in electric vehicle stocks in the last few months. The reasons include chip shortage, supply chain issue and raw material inflation. Also, growth stocks have been battered in the recent plunge.
The deep correction provides a good opportunity to consider some EV stocks. Tesla (NASDAQ:TSLA) is clearly one name that’s worth considering on dips. However, among high-growth names, Rivian Automotive (NASDAQ:RIVN) looks attractive.
For Q1 2022, Rivian produced 2,553 vehicles and delivered 1,227 vehicles. The company has reaffirmed the guidance for production of 25,000 vehicles in 2022.
Rivian already has an order backlog of 90,000 vehicles for its electric trucks. The company also has an initial order of 100,000 electric delivery vehicle from Amazon (NASDAQ:AMZN). These orders provide revenue upside visibility.
In terms of production, Rivian already has plans to ramp up total capacity to 600,000 vehicles between its Normal and Georgia plants. With $18.4 billion in cash and equivalents, the company seems fully financed for the medium term.
Overall, Rivian has already launched R1T and R1S for the U.S. markets. Additionally, the company’s electric delivery vehicle is likely to boost growth. After a plunge of 78% for year-to-date 2022, RIVN stock is among the names to consider for the long term.
Among growth stocks that have witnessed a significant correction, Pinterest (NYSE:PINS) looks attractive. The stock trades at a forward P/E of 23.1 and seems oversold considering the long-term growth outlook.
For Q1, Pinterest reported revenue growth of 18% on a year-on-year basis. However, excluding U.S. and Europe, the company’s revenue growth was 152%. This is one big reason to like Pinterest. The company has a global addressable market and there is ample headroom for growth in international markets.
Another major reason to like Pinterest for the long-term is the company’s effort to make the platform more shopping friendly. The company recently launched the Pinterest API for Shopping. With sustained growth in global e-commerce, Pinterest is well positioned to benefit.
Pinterest reported operating cash flow of $213 million in the first quarter. The company already has an annualized OCF potential of $800 million. With growth in international average revenue per user, the long-term free cash flow outlook is robust.
Of course, PINS is a high-beta stock. I would still include it in the retirement portfolio considering current valuations.
Cheap Stocks to Buy: Target (TGT)
With retail spending being a key driver of the U.S. economy, I would also consider a retailer for the retirement portfolio. Target (NYSE:TGT) is among the cheap stocks to buy from the sector. The stock currently trades at a forward P/E of 15.4. In comparison, Costco (NASDAQ:COST) trades at a forward P/E of 37.9.
For 2021, Target reported 12.7% growth in comparable store sales. This was on top of a 19.3% growth in 2020. Further, the company’s digital comparable sales growth was 21% in 2020 on a year-on-year basis. Clearly, Target has achieved robust growth and is building a strong omni-channel presence.
The company’s sale-day services have been the fastest growing part of the business. The company has also committed to invest significantly over the next few years towards store remodeling, new stores and ramping-up e-commerce sales.
For the long term, Target has guided for high single-digit growth in adjusted EPS. For the last financial year, the company reported operating cash flow of $8.6 billion. Given the growth visibility, OCF is likely to be in excess of $10.0 billion in the next few years. TGT stock therefore looks like a value creator through dividends and stock upside.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.