For new investors looking for their first stock with limited cash, the low-priced stocks make sense as a starting ground. Though low prices, such as $20 per share, are more within reach of smaller retail investors, they are not exactly indicative of deep undervaluation.
To value a stock appropriately, investors should check valuation ratios, such as the trailing and forward price-to-earnings (P/E) ratios. Then, compare those against comparable plays or the industry average.
Of course, other ratios deserve some attention as you evaluate a firm. Of the following three stocks, two appear to be deeply undervalued. Let’s explore this trio, which may be an excellent choices for contrarians this May.
Warner Bros. Discovery (WBD)
Warner Bros. Discovery (NASDAQ:WBD) has been quite a disastrous merger for investors who jumped into the stock at almost any point over the past year. At $7.80 per share, WBD stock certainly looks like a play that’s deep with value. Yet, the fundamentals seem to be fading, not just with Warner Bros. Discovery but the media industry as a whole.
Indeed, the bottom in the stock may still be a ways off for contrarians hoping for quick gain. The $19 billion company still has loads of debt, and the advertising headwinds have continued to weigh.
At this juncture, a merger with another distressed media firm seems like wishful thinking. Until now, the company has struggled to find a balance between growth and trimming costs. To keep up with the streaming heavyweights, one needs to spend a great deal. However, that will cut further into profits and limit debt repayments.
So, no easy answers are apparent for Warner Bros. Discovery. However, the stock looks incredibly cheap at 0.46 times price-to-book (P/B). At these depths, expectations may just be low enough to be worth the risk.
Carnival (CCL)
Known for its branded “Fun Ship” cruise line, Carnival (NYSE:CCL) stock has been cruising sideways since bouncing back modestly from its 2020 lows. Truly, demand for cruise lines has been picking up lately. But CCL stock has dragged its feet relative to its better-performing rivals. As the industry heals from the heavy hit of the pandemic, Carnival will eventually have the means to gain traction again.
Until then, Carnival has stood out as more of a budget option in a market that seems to favor high-end luxury players. CCL seems to be better suited for families and consumers with average incomes. Unfortunately, these folks have had inflation hit them quite hard.
On the plus side, Carnival’s latest quarter saw smaller losses than expected. However, it doesn’t look like CCL stock is going to hang onto the gains, with shares dipping more than 3% on Tuesday. In any case, CCL stock stands out as a relative bargain at 13.3 times forward P/E. At just over $14 per share, Carnival stands out as a great long-term bet for those bullish on a continued recovery in travel and leisure.
Mattel (MAT)
Mattel (NASDAQ:MAT) is the legendary toy company behind Barbie and Fisher-Price. Lately, the stock has been fluctuating wildly, with the stock down 26% over the past two years and around 60% from its 2013 all-time highs. Undoubtedly, MAT stock has been quite a long-time laggard.
And, while the Barbie movie jolt may be starting to fade, I do think the stock remains an attractive value option for patient investors. At $18.72 per share, Mattel is certainly an ideal first buy for a new investor looking for consumer brands.
About two weeks ago, Mattel reported a soft quarter in which revenue fell 1% year-over-year (YOY). Despite an unimpressive showing, the toy company saw notable strength in the North American market. Furthermore, the big three brands of Barbie, Hot Wheels and Fisher-Price posted decent numbers.
Moving ahead, earnings could begin to march higher as discretionary budgets improve. The stock goes for 13.2 times forward P/E, which may be far too cheap for so many legendary toy brands.
On the date of publication, Joey Frenette 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.
