The stock market has been barging its way higher so far this year. The S&P 500 is up about 10% in 2023, while the Nasdaq sports a year-to-date gain of 25%. That may have many investors assuming that most stocks have already rallied. However, that’s not the case. So what are the best bargain stocks to buy?
Surprisingly, just a handful of stocks are driving almost all of the gains in the S&P 500. In fact, market breadth is concerningly low for some investors, as they wonder whether big tech has enough strength to continue carrying the indices higher.
The fact that many stocks have not participated in the rally is a bit concerning. At the same time, it leaves a lot of opportunities for others stocks to join in. Let’s look at a few of the top value stocks for June 2023 and the best cheap stocks with growth potential.
There’s no love at all for PayPal (NASDAQ:PYPL). At least, none from Wall Street. Despite reporting solid earnings results and raising guidance multiple times over the last several quarters, the stock refused to rally.
Then the company reported earnings on May 8 and investors crushed the stock. Shares fell 12.7% in a single session after earnings and ultimately sank 22% before finding its current 52-week low of $58.95. Let’s put it this way: Shares are now down more than 23% from the Covid-19 low.
That’s pretty rough.
At the same time, the stock now trades at just 12 times this year’s earnings forecast, while analysts expect roughly 20% earnings growth this year. Next year, expectations call for 15% growth. That’s alongside high-single-digit revenue growth for both years.
I don’t know when buyers will step in for this name, but at this valuation with this growth rate, it qualifies as one of the best cheap stocks with growth potential.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) could certainly have further to fall. Shares are down just 17% from the all-time high. But saying “down just 17%” is a pretty big deal for J&J.
At the recent low, shares were down almost 20%. Declines of this magnitude are usually gobbled up by investors. So far though, they’ve been slow to do so.
That makes me think that there could be more downside in the name, particularly if big-tech falters and the overall market starts to dive lower.
The flip side of that argument is that buyers could pile into J&J as they look for safety, and that safety is apparent. Not only does the firm run an excellent business that should do relatively well regardless of the economy, Johnson & Johnson stock trades at a reasonable valuation.
For less than 15 times earnings, investors get access to quality and dependable earnings, which are forecast to grow in the mid-single-digit range this year and next. Further, the stock pays a 3.3% dividend yield. When the firm raised that dividend in April, it marked J&J’s 61st consecutive annual dividend increase.
Zoom Video (ZM)
Probably considered the pandemic stock, Zoom Video (NYSE:ZM) is a controversial pick when looking for the best bargain stocks to buy. Many investors don’t want anything to do with Zoom Video and that’s not just an opinion of mine. That’s how the stock has been trading!
Shares remain 88.5% below the all-time high after suffering a peak-to-trough fall of almost 90%. That said, this firm was profitable and free cash flow positive before the pandemic and it has remained so after the pandemic as well.
I understand it will take some time for investors to warm up to this name. While analysts expect modest to flat growth this year and next, shares trade at just 15 times earnings. Also, the company generated more than $1.1 billion in free cash flow and has more than $5.5 billion in cash on hand with a market cap of just $20 billion.
Plus, it continues to hold the $60 level.
On the date of publication, Bret Kenwell held a long position in PYPL and JNJ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.