3 cheap stocks investors should buy by hand
In today’s bear market, there are plenty of cheap stocks out there, but some of them are worth it. However, a handful were dragged down by general sentiment, and these stocks are where investors should look to buy.
I believe three are cheap but still valuable right now are Alphabet (GOOG 4.41%) (GOOGL 4.16%), MercadoLibre (MELI 8.12%)and Reached (UPST 8.04%). While they may see headwinds in the short term, I think everyone’s business model will work well in the long term. Here’s why.
While Alphabet may be little known to non-investors, the companies it owns are not. Under its umbrella are Google, YouTube and the Android operating system. Although it may seem like a diverse business, 80% of its revenue comes from advertising sources.
This concentration is precisely why the stock is valued at around 20 times earnings, near an all-time low and down almost 30% from its peak. Advertising budgets are cut during recessions and Alphabet is in the crosshairs.
However, I think this idea is wrong. Take a look at Alphabet’s revenue over the past 12 months since 2005. It barely faltered during the COVID-induced recession of 2020 or the Great Recession of 2007-09.
Now I hear the criticism: “The COVID recession barely lasted a few months! This time it’s different!” While I agree with that, there was hardly any travel advertising in 2020, and Alphabet still managed to stay the course. While Alphabet may see pressure across the board, an entire segment won’t evaporate.
Removing these concerns, Alphabet is a robust company. It has nearly $134 billion on its balance sheet in cash and cash equivalents, and its return on invested capital was 28% last quarter. Additionally, Alphabet has a $70 billion share buyback plan executed at a historically low valuation, meaning management is getting more for its money with its buyback program.
Alphabet is one of the most stable companies on the planet and a great buy for growth and stability in your portfolio.
While e-commerce seems to have played with other businesses, MercadoLibre is just getting started. Based in Latin America, MercadoLibre provides all the necessary tools (like an online marketplace, digital payments, shipping logistics, and consumer credit) for e-commerce to thrive.
When someone says a company is “firing on all cylinders”, they should be pointing to MercadoLibre. During the first quarter, its fintech revenue grew 113% year-over-year (YOY) to $971 million, while commerce revenue increased 44% to $1.3 billion. dollars. Digging a little deeper, MercadoLibre delivered 79% of packages within 48 hours of ordering, and its fintech participation rate exploded by 20% thanks to its credit division.
Despite this execution, the stock is trading at record highs.
In 2009, the global financial system was on the brink of collapse – yet you can buy MercadoLibre shares for the same valuation now as you did then.
Negative sentiment could stem from MercadoLibre’s fragile profitability (although it posted a 2.9% net income margin this quarter). However, MercadoLibre is still relatively early in its growth phase, and investors should be excited about the growth it has yet to capture.
3. Assets received
Upstart’s stock has had a wild ride since its IPO in late 2020. It once traded for over $400, but today you can buy it for around $35. A dramatic fall like this usually indicates a failing business or perhaps a management scandal. However, for Upstart, it was a factor: extreme valuation. At its peak, Upstart was trading for almost 45 times its sales; now it is trading for just under three.
While some software companies trade this high, companies that specialize in approval loans do not. Upstart’s model replaces the traditional FICO consumer credit score by using artificial intelligence (AI) to assess loan risk more accurately. The program works well enough that lenders can approve the same amount of loans while experiencing 75% fewer defaults.
So if Upstart supports Fair Issac Co. and its FICO score, we should compare it to its established competitor.
It’s not often that the challenger wins the incumbent’s business while trading at a lower valuation than its rival, but that’s what’s happening here.
To top it off, Upstart’s first-quarter revenue grew 156% year-over-year, while the company posted an 11% profit margin. Upstart is also expanding into auto loans in addition to its initial personal loan offering.
While it’s a valid argument that fewer consumers will take out loans to buy, banks will want to tighten their lending practices while maintaining as much business as possible. What better way to do this than by using Upstart’s solution, which has been proven to reduce risk while maintaining approval rates?
If Upstart can capture business during a recession, its business will explode when the economy recovers and consumers are confident enough to make major purchases.
Although I don’t know when the market will recover, I am confident that these three companies will emerge stronger than when they entered the bear market. Whether that’s in a year or three, I’m not sure. But over the long term, I can think of few better places to invest right now.