The truth is, if an investor is looking to make long-term bets on cheap stocks, they’re going to have to be willing to get outside of their comfort zone at times. Equities at lower, attractive valuations will not be easy to find in well-followed sectors, such as technology or consumer goods. Rather, they’re easily found in sectors with much less love, be it chemicals, oil and gas, mining or financials. Despite these sectors having received a ton of bad press over the years, they are full of cheap stocks from companies boasting large profits and giving steady dividends. Lets look at a few cheap stocks for contrarian investors.
Petrobras (PBR)
Petrobras (NYSE:PBR) is the state-run oil and natural gas behemoth headquartered in Rio de Janeiro, Brazil. Last year, global commodity prices skyrocketed, and elevated energy prices allowed Petrobras to profit immensely. In particular, Petrobras made $121 billion in revenue and $38 billion in net income. Its performance primarily came from the appreciation of the price of Brent crude oil and higher sales of oil products, at higher than average prices, in the Brazilian domestic market.
However, after Luiz Inacio Lula da Silva won the recent Brazilian presidential election, PBR stock became rather volatile due to many analysts predicting Lula’s win would mean more state intervention and control. Those predictions never came into fruition the way analysts predicted, and Petrobras’s stock is currently up nearly 50% year-to-date.
Petrobras’s large net income has translated into huge dividends for shareholders. As an example, the company doled out more than $43 billion in dividend payments in 2022. Although Brent crude oil prices are stabilizing, Petrobras remains profitable and undervalued. In fact, PBR’s price-to-earnings ratio on a trailing-12-month basis is only around 2.5x. Its dividend yield remains close to 31%.
ZIM Integrated Shipping Services (ZIM)
ZIM Integrated Shipping Services (NYSE:ZIM) provides container shipping and related services in Israel and internationally. In particular, ZIM provides door-to-door and port-to-port transportation services for various types of customers, including end-users, consolidators and freight forwarders. Although not a well-known shipping company, ZIM posted more than $12.5 billion in sales in 2022, mostly driven by elevated shipping spot-rates. Prior to that in 2021, ZIM made a record $10 billion in sales as the economies of the world began to loosen pandemic-era restrictions.
The risk investors see here is that containerized shipping rates are not expected to return to elevated levels in the near future. If true, that will have a dampening effect on ZIM’s revenue growth. Nonetheless ZIM’s management team is expecting the macroeconomic environment to improve from a shipping perspective, especially as China’s reopening kicks into gear.
ZIM is currently trading at an attractive valuation of 2.6x.
Albemarle (ALB)
Albemarle Corporation (NYSE:ALB) mines, develops and manufactures specialty chemicals. The company is best known for its lithium mining operations. Lithium’s high electrochemical potential makes it a valuable component of high energy-density rechargeable lithium-ion batteries. Lithium-ion batteries power a number of products, including personal computers, smartphones, tablets and electric vehicles.
Currently there are two things which scare investors away from buying Albemarle’s stock. First is its exposure to Chile, which comes with political risks. Second, its exposure to the mining sector in general, which comes with a host of environmental and ethical risks. Recent panic around Chile’s President Gabriel Boric’s announcement his government would assume a larger role in the Chile’s lithium mining sector, sent mining stocks crashing in April. However, ALB executives did not see this as a nationalization of Chile’s lithium industry as many feared. Instead, CEO Kent Masters felt calling the move as such was “too strong,” arguing “It’s a quasi-nationalization in that the playing field will now be levelled in favor of the state.” The CEO did not feel Albermarle’s operations would be harmed by the move.
If investors want to tap into the lithium craze, Albemarle could be a great candidate. Albemarle’s last twelve months revenue figures currently stand at more than $8.7 billion and normalized diluted EPS at $22.17 per share. On a trailing-12-month basis, the company is also trading at only 7.0x earnings.
On the date of publication, Tyrik Torres did not have (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.
