Buying bargain stocks provides a higher margin of safety and can result in steady long-term gains. While each investor views bargains differently, most monitor a few aspects in corporations under consideration.
The first key detail is financial growth. The best stocks usually exhibit high revenue growth alongside double-digit profit margins. Profit margin expansion allows a company to pour more money into the business and reward shareholders. Corporations with higher net incomes can deploy some of those funds into stock buybacks and dividends.
Another key factor is a company’s competitive advantage. If the corporation has many competitors, it’s more difficult to gain market share and stand out. Corporations with very few competitors have more pricing power and can reward long-term investors.
Also, investors should consider the valuation to assess their margin of safety. A low valuation without the other two details won’t work out. Yet a good valuation serves as the icing on the cake. Let’s delve into some of the top bargain stocks to consider.
Nvidia (NVDA)
Nvidia’s (NASDAQ:NVDA) inclusion on this list may shock investors since the stock has almost tripled year-to-date (YTD). It’s also up by more than 3,500% over the past five years. There’s a lot of bullishness for the stock right now, with some speculating that Nvidia can reclaim $1,200 per share even after the split.
While that sounds like a stretch unless we experience record-breaking inflation, the excitement is warranted. Nvidia has a dominant position in the artificial intelligence (AI) industry. Its chips are second to none, and financials remain exceptional.
Revenue increased by 262% year-over-year (YOY) in Q1 of fiscal year 2025 while net income soared by 628% YOY. Investors know that Nvidia won’t maintain triple-digit revenue and earnings growth rates forever. But it has a good runway that can lead to meaningful long-term growth. By the time Nvidia’s financial growth slows down, the stock can be in another stratosphere. The company’s exceptional growth and competitive edge make it a bargain at current levels.
Alphabet (GOOG,GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is another AI beneficiary that makes most of its revenue from advertising and cloud computing. The latter segment is quite notable, as Google Cloud now makes up more than 10% of the company’s total revenue. It represents Alphabet’s desire to diversify its revenue streams beyond advertising and offer more upside for long-term investors.
The company certainly delivered in the first quarter of 2024. Revenue increased by 15% YOY while net income soared by 57% YOY. Alphabet closed out the quarter with a 29.4% net profit margin. Shares are up by 28% YTD and have more than tripled over the past five years.
Also, the recent rally has elevated the P/E ratio, but it’s still at a reasonable 28. And shares offer a 0.45% yield at current levels. Alphabet trades at a $2.2 trillion market cap and can realistically reach a $3 trillion market cap within the next three years, especially as profit margins expand. Analysts are bullish on the stock and have rated it as a strong buy. The average price target suggests a 12% upside from current levels.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) has beat the stock market with a 45% YTD gain. It’s also gained 178% over the past five years. Despite the big rally, the stock only has a 29 P/E ratio and offers a 0.40% yield. Efficiency has been a big theme for Meta Platforms. The company reduced its headcount by 10% YOY in Q1 of 2024 and has plans to trim its VP positions as well.
The top-line looks undisturbed from these changes. Revenue increased by 27% YOY while net income surged by 117% YOY. Wall Street analysts are bullish on the stock and have rated it as a strong buy. The average price target suggests a 4% upside.
Social media giants like Meta Platforms may have more room to get efficient, and other big tech companies have also been following Meta Platforms’ lead. It’s worth noting that Elon Musk cut about 80% of (then) Twitter’s staff. While X (Twitter) is mired in financial challenges and lukewarm advertising growth that may have necessitated more cuts, other tech firms may believe that they can get away with less drastic measures and increase profits in the process.
On this date of publication, Marc Guberti held long positions in NVDA and GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
