In 2022, the S&P 500 had its worst year since 2008, with a total return of -18.11%, nearly 47 percentage points worse than in 2021. But it could have been much worse. Since 1928, the index has lost more than 20% in a given year on six occasions. So, while it’s not easy putting money into the markets when the sentiment is so negative, there are still cheap stocks that analysts love.
Whether you have the nerve to make a move is another story altogether. There’s no shame in sitting on cash rather than throwing money down a potential rabbit hole.
For those who aren’t backing down from Mr. Market, I look for stocks with solid balance sheets and make good money, and a majority of analysts that cover these companies rate them as overweight or an outright buy.
To make the cut, a stock should have a market capitalization of $1 billion or greater, net debt of $1 billion or less, an EBITDA margin of 20% or higher, and a price-to-sales ratio of less than five.
You’ll notice that there are some very familiar names and some lesser-known businesses. All seven of them have a shot at redemption in 2023.
Cheap Stocks Wall Street Analysts Love: Alphabet (GOOG, GOOGL)
InvestorPlace contributor David Moadel discussed what layoffs at Google would mean for Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) stock in early December. My colleague believes these job cuts could lead to a leaner, more competitive business.
Moadel also pointed out that U.K.-based activist investor TCI Fund Management feels Alphabet has too many employees. With slowing revenue growth, that’s resulting in a cost per employee that is too high.
Google is considering laying off as many as 10,000 employees. The mere threat of these job cuts has undoubtedly hampered the company’s productivity in recent weeks. If they’re going to cut, do it sooner rather than later because nobody wins by dithering about the decision.
On Jan. 5, Amazon (NASDAQ:AMZN) announced it was cutting 18,000 employees in the weeks ahead. That’s approximately 1.2% of its global workforce. It’s not a lot in the big picture, but it indicates that many tech darlings aren’t faring nearly as well in a higher interest rate environment.
However, of the 49 analysts covering GOOGL stock, 45 give it an overweight or outright buy rating, with an average target price of $123.46, 43% higher than where it’s currently trading.
Its price-to-sales ratio is 4.15x sales, lower than it’s been since 2014. But, by every metric, it’s cheaper than it’s been in years.
Playa Hotels & Resorts (PLYA)
I last wrote about Playa Hotels & Resorts (NASDAQ:PLYA) in August 2021. I recommended it along with two other stocks that traded around $7, the same price as Ocugen (NASDAQ:OCGN) the biotech company looking to commercialize Bharat Biotech’s Covaxin vaccine in North America.
In the 17 months since, the operator of 22 all-inclusive resorts in Mexico, Jamaica, and the Dominican Republic, has seen its stock go sideways. Over the same period, the index lost 14% of its value. Nevertheless, it’s been remarkably resilient in a challenging market.
In November, the company announced its third-quarter earnings.
Highlights included total net revenue of $196.3 million (34.1% higher year-over-year), adjusted net income of $5.9 million, 143% higher than a loss of $13.7 million a year earlier, and a 14.5 percentage point increase in occupancy, to 73.8%.
“The underlying performance in the quarter and our current strength in booking demand give us a continued sense of optimism as we approach our high season. Demand has remained strong across our portfolio, and as of mid-October, our revenue on the books for the first quarter of 2023 is up nearly 40% year-over-year for our Playa owned and managed resorts, with increased ADRs driving nearly one-third of the gains,” stated CEO Bruce Wardinski in its Q3 2022 press release.
In December, it opened its first all-inclusive Jewel resort in the Dominican Republic. In January, it will open a second Jewel resort in the country. That adds 1,120 rooms to its operations in 2023.
Trading at 1.27 times sales, PLYA stock is cheaper than it’s been at any time in the past five years.
Cheap Stocks Wall Street Analysts Love: Hostess Brands (TWNK)
It probably shouldn’t come as a surprise that Hostess Brands (NASDAQ:TWNK) stock is up nearly 10% over the past 52 weeks, considerably better than the 18.9% decline for the index.
The maker of Twinkies is an excellent defensive play. While inflation’s caused consumers to drop all kinds of items from their weekly shopping list, it’s unlikely to alter their purchase of Twinkies.
For example, BakingBusiness reported in December that Hostess is doing an excellent job getting young men to buy their sweet goods in convenience stores. In the most recent quarter, it grew the sales of its sweet goods to the convenience store channel by more than 20% YOY.
According to Hostess, nearly 25% of consumers start their day with a sweet snack. This market is valued at $5.8 billion and grows by more than 5% yearly.
“In total, we’ve identified 18 different consumer snacking occasions, and we offer snacks for every occasion, with some of the top occasions being a sweet start to the morning, in the lunch box, as an afternoon reward, immediate consumption and afternoon snacks for sharing,” said Tina Lambert, vice president, Marketing Center of Excellence, Hostess Brands.
With a free cash flow yield of 4.2% and sales growing by 20% a quarter, Hostess stock is an example of growth at a reasonable price.
EOG Resources (EOG)
It shouldn’t be surprising that EOG Resources (NYSE:EOG) stock is up 30.2% over the past 52 weeks. The oil and gas producer’s daily production in 2021 was 829,000 barrels of oil equivalent. At the midpoint of guidance, it’s on track to produce 915,100 barrels of oil equivalent per day in 2022.
As a result of this production, it generated $5.92 billion in free cash flow through the end of Q3 2022, up 69% from a year earlier. It already produced $420 million more free cash flow in 2022 than in 2021, and it’s got one quarter left in the fiscal year. By the time it reports Q4 2022 in February, it could be over $10 billion.
Based on $10 billion in free cash flow and a $73.1 billion market cap, its current free cash flow yield is 13.7%. Anything over 8% is in value territory. As for price-to-sales, it currently trades at 2.52x sales, considerably less than its five-year average of 3.35.
Analysts like it too.
Of the 33 that cover EOG stock, 26 rate it overweight or an outright buy, with a target price of $156.90, 26% higher than where it’s currently trading.
The company continues to make hay while the sun shines. It’s committed to paying out 60% of its free cash flow to shareholders through dividends and strategic share repurchases.
Since 1999, it’s increased its dividend by 22%, compounded annually. In addition, in the third quarter, it paid a $1.50 a share special dividend.
EOG is an income investor’s dream stock.
Cheap Stocks Wall Street Analysts Love: Ameriprise Financial (AMP)
Over the past five years, Ameriprise Financial (NYSE:AMP) stock is up nearly 70%, almost double the index. However, in the past 52 weeks, AMP is down 3.3%, one-sixth the loss of the S&P 500.
If you’ve been a long-time shareholder, you’ve been winning in good times and bad. I’d be grateful for the steady returns.
I included the financial planning and advisory firm on a list of “10 Baby Boomer Stocks to Buy and Retire Wealthy” in May 2019. It was an interesting mix of aggressive and defensive bets. Ameriprise fits somewhere in the middle.
It’s grown its assets under management and administration significantly despite the market correction in 2022. In Q3 2017, they were $484 billion. Today, they’re more than $1.1 trillion. Moreover, since 2012, its operating earnings have grown by 124% over the past decade to $$3.8 billion in 2022 from $1.7 billion in 2012.
Ameriprise targets households with $500,000 to $5 million in investable assets. This cohort has approximately 14.5 million households, 45% under 45.
The company is targeting a stable and growing market. That will ultimately lead to long-term, market-beating returns. As a result, its valuation — 2.47 times sales and 10.93 times forward earnings — is fair to undervalued relative to its peers.
It’s a smart bet on the markets moving higher.
Dynavax Technologies (DVAX)
As I stated in December, while discussing the top seven small-cap stock picks for 2023, Dynavax Technologies (NASDAQ:DVAX) made a lot of money in recent quarters from revenue generated by combining its CpG 1018 adjuvant with Covid-19 vaccines. The combination is meant to boost the immune response of patients.
The concern from investors is that once Covid-19 goes away, or at least fades from the spotlight, Dynavax will lose a significant chunk of its revenue. Therefore, to avoid this from happening, it is working on various combinations currently in Phase 1 or Phase 2 clinical trials that will deliver future growth with or without Covid.
If you look at Dynavax’s chart, you will notice that all its success came in 2021, when it jumped from less than $5 at the end of 2020 to a high near $20 by October 2021.
The other commercial product that Dynavax has commercialized is Heplisav-B, the company’s adult hepatitis B vaccine. In Q3 2022, Heplisav-B generated $37.5 million in revenue, 55% higher than a year earlier and 14.7% higher than in Q2 2022. Sequentially, it grew Heplisav-B sales by 57.2% in the second quarter from $20.8 million in the first.
As a business, you could value Heplisav-B between 2-4x its annual sales of $120 million ($91 million through the first nine months of fiscal 2022). At the high end, that’s almost $500 million or nearly 40% of its overall revenue.
Of the six analysts that cover its stock, all six rate it a buy, with a target price of $23.20, more than double its current share price.
If you’re unable to handle above-average risk, DVAX might not be for you, but if you’re a value investor who understands the ups and downs of biotech investing, it should be on your watch list.
Cheap Stocks Wall Street Analysts Love: Copa Holdings (CPA)
After seeing Southwest Airlines’ (NYSE:LUV) scheduling systems unravel over the holidays, almost any other airline might be a better choice than LUV.
Over the past decade, I’ve been particularly impressed by Copa Holdings (NYSE:CPA), the Panamanian holding company that owns Copa Airlines and Copa Airlines Colombia. Over the past year, CPA stock is up nearly 4%, more than 27% higher than Southwest.
Of the 13 analysts covering CPA stock, 11 rate it as overweight or an outright buy. Its target price is $115.46, 37% higher than where it’s currently trading.
The airline’s key metrics are moving in the right direction.
In Q3 2022, its revenue per available seat mile (RASM) increased 15.0% from Q3 2019 to 12.8 cents. However, its operating cost per available seat mile (CASM), excluding fuel, decreased by 5.3% to 5.9 cents. If you include fuel, its CASM was 10.5 cents, 16.4% higher than in Q3 2019 due to higher fuel prices.
Conservatively financed, Copa finished the third quarter with net debt of $600 million, or 16% of its market cap.
If you look at the airline’s Q3 2022 press release, you’ll see it is progressing in getting its business back to pre-Covid numbers.
In the nine months that ended Q3 2019, it had an adjusted net income of $244.3 million. In Q1-Q3 2020, it lost $411 million. It lost $40.5 million in Q1-Q3 2021 and a profit of $157.7 million in 2022.
The next three years will likely be much better for Copa than the past three. The improved performance is likely to lead to a higher share price.
On the date of publication, Will Ashworth 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.
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