It’s the season of giving. But the market hasn’t been in a very giving mood. October and November have seen some of the most trendy stocks stumble to find solid ground. Marijuana stocks? Down in a puff of smoke. FAANG stocks? They lost their bite. Even oil stocks that seemed to be recovering look like a gigantic head fake.
But the question investors really want an answer to is why are so many good stocks down? And there’s plenty to look for there as well. Interest rates are rising and are expected to do so through 2019. The trade war with China shows no sign of stopping anytime soon and speaking of China – their economy is showing signs of weakness that are giving investors pause. And just for good measure, investors are still trying to discern exactly how the mid-term elections will affect our economic and monetary policy.
However, the news isn't all bad. Analysts are expecting to see strong earnings reports. Unemployment is down, consumer confidence is up. And by the looks of Black Friday and Cyber Monday, the Holiday season is off to a strong start. All we need is the traditional and expected Santa Claus rally.
As an investor, now is the time to look through the clearance rack and buy some quality stocks that are heavily discounted right now. These are good stocks that have come upon hard times. But they are showing signs of recovery, and this makes now the perfect time to buy them and ride them into the Holidays and beyond.
Quick Links
- JD.com
- A.O. Smith
- Goldman Sachs
- Transcanada
- Schlumberger
- British American Tobacco
- Qualcomm
#1 - JD.com (NASDAQ:JD)
JD.com (NASDAQ: JD) - This e-commerce company has had a rough go of it in 2018, and the problem is not spelled Amazon. Like many Chinese stocks, the trade war took its toll, which may or may not has contributed to a significant slowing in its revenue growth rate. But just when the market was digesting those concerns, the company, CEO, Richard Liu, was named in a sexual assault allegation that clearly sent the stock reeling. After hitting a high of $50 per share earlier in the year, the stock is currently stuck in a range and struggling to rise much above $20 per share. That puts it an area that is approximately 0.5x sales. Unless you see the trade war with China remaining unresolved, or there to be a fundamental problem with the company’s model, this seems like a case of a stock that is very undervalued. The company is forecasting revenues to increase by 30% next year. Even if they come in slightly below, there is a good reason to expect its stock price to rise.
About JD.com
JD.com, Inc operates as a supply chain-based technology and service provider in the People's Republic of China. The company offers computers, communication, and consumer electronics products, as well as home appliances; and general merchandise products comprising food, beverage and fresh produce, baby and maternity products, furniture and household goods, cosmetics and other personal care items, pharmaceutical and healthcare products, industrial products, books, automobile accessories, apparel and footwear, bags, and jewelry.
Read More - Current Price
- $35.64
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 11 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $41.36 (16.0% Upside)
#2 - A.O. Smith (NYSE:AOS)
A.O. Smith (NYSE: AOS) - Another China stock to look at is A.O. Smith. This company has an $8 billion market cap and they are the leader in products such as water heaters, boilers, and other water treatment products. While this may not be as sexy as e-commerce, it may be a safer bet, particularly in an uncertain trade environment. In the last 10 years, the stock has risen from $6 per share to a high of $65 before falling back since the trade war with China began. The stock is down about 30% from its high and that is a great reason to buy. The reason for this is supply and demand. China has a burgeoning middle class that needs the company’s products. This has allowed the company to achieve double-digit revenue growth. The stock is currently trading at around 16X forward earnings which, for a stock that is considered to fall in the “defensive” category is pretty reasonable, particularly when its growth shows no sign of slowing down. And investors who are interested in this “utility” stock are looking for dividends. This is another area where A.O. Smith delivers. The company has been issuing, and increasing, their dividend recently. In 2018, they recently increased their dividend by 22%.
About A. O. Smith
A. O. Smith Corporation manufactures and markets residential and commercial gas and electric water heaters, boilers, heat pumps, tanks, and water treatment products in North America, China, Europe, and India. The company offers water heaters for residences, restaurants, hotels, office buildings, laundries, car washes, and small businesses; boilers for hospitals, schools, hotels, and other large commercial buildings, as well as homes, apartments, and condominiums; and water treatment products comprising point-of-entry water softeners, well water solutions, and whole-home water filtration products, and point-of-use carbon and reverse osmosis products for residences, restaurants, hotels, and offices.
Read More - Current Price
- $68.72
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $83.17 (21.0% Upside)
#3 - Goldman Sachs (NYSE:GS)
Goldman Sachs (NYSE: GS) - Investment banks may have a reputation that is comparable to Ebenezer Scrooge, but analysts are using recent events to be the Grinch that is stealing holiday joy from Goldman’s stock. And to be sure, nobody is going to feel sorry for a stock that is still trading north of $200 per share. Still, if you’re looking for stocks that are selling at a discount (it dropped over ten percent in a week), Goldman Sachs should draw interest. The company is involved in a scandal involving the Malaysian finance minister’s request for a $600 million refund of fees associated with Goldman’s involvement in underwriting bonds of Malaysia’s 1MDB fund. Now claims of theft are not to be taken lightly, but there are two things to consider. First, scandals of this sort are not new to investment banks. They usually end up being settled with fines and a stern reprimand from regulators. But right now Goldman’s punishment which is currently measured as a stock price that is down disproportionately to the amount of market cap that is being implicated. Second, even if GS has to pay the full $600 million, it would be equivalent to a hit of less than $2 per share (or less than 1%) of the company’s stock.
About The Goldman Sachs Group
The Goldman Sachs Group, Inc, a financial institution, provides a range of financial services for corporations, financial institutions, governments, and individuals worldwide. It operates through Global Banking & Markets, Asset & Wealth Management, and Platform Solutions segments. The Global Banking & Markets segment provides financial advisory services, including strategic advisory assignments related to mergers and acquisitions, divestitures, corporate defense activities, restructurings, and spin-offs; and relationship lending, and acquisition financing, as well as secured lending, through structured credit and asset-backed lending and involved in financing under securities to resale agreements.
Read More - Current Price
- $566.10
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 13 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $559.75 (1.1% Downside)
#4 - Transcanada (NYSE:TRP)
Transcanada (NYSE: TRP) - Transcanada is a great energy stock that finds itself on the clearance rack because of the problems besetting the oil industry. While consumers are enjoying lower prices at the pump, investors have a follow the herd mentality when it comes to crude stocks and right now that means a wave of selling. However, TRP’s stock which has followed other energy stocks in a downward direction is now ripe for a resurgence. The company – which owns the Keystone pipeline among other natural gas pipelines and other energy-related assets – has generated 19 years of 13% compounded annual returns. If that wasn’t enough, the company is projecting an 8% to 10% dividend hike for the next five years. And if investors need further convincing, they should remember that Transcanada is also a leader in the natural gas market which has surged 50% in advance of the heating season.
About TC Energy
TC Energy Corporation operates as an energy infrastructure company in North America. It operates through five segments: Canadian Natural Gas Pipelines; U.S. Natural Gas Pipelines; Mexico Natural Gas Pipelines; Liquids Pipelines; and Power and Energy Solutions. The company builds and operates a network of 93,600 kilometers of natural gas pipelines, which transports natural gas from supply basins to local distribution companies, power generation plants, industrial facilities, interconnecting pipelines, LNG export terminals, and other businesses.
Read More - Current Price
- $45.79
- Consensus Rating
- Hold
- Ratings Breakdown
- 5 Buy Ratings, 2 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $55.67 (21.6% Upside)
#5 - Schlumberger (NYSE:SLB)
Schlumberger (NYSE: SLB) - This oil stock is a technical analyst’s dream. The last time the crude oil market took a tumble down all the way down to $27 per barrel, Schlumberger’s stock hit a low of $65 per share. The current crude oil correction has prices at around $50, nearly double their low point in 2016, but Schlumberger’s stock has fallen to $48 per share. That 25% decline from its 2016 levels seems like a hefty discount for a company that hasn’t lost its industry leadership position and continues to pay a dividend despite the drop in crude prices over the last few years. Schlumberger appears to be a company caught up in the overall selloff taking place with crude stocks. The oil industry will rebound. The question is when. That’s hard to tell. What’s easy to forecast is that SLB will still be a leader and may even benefit from weaker companies that may become insolvent as the oil crisis drags on.
About Schlumberger
Schlumberger Limited engages in the provision of technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. The company provides field development and hydrocarbon production, carbon management, and integration of adjacent energy systems; reservoir interpretation and data processing services for exploration data; and well construction and production improvement services and products.
Read More - Current Price
- $36.83
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $58.85 (59.8% Upside)
#6 - British American Tobacco (NYSE:BTI)
British American Tobacco (NYSE: BTI) - Under the category of systematic risk, we have the case of British American Tobacco. The FDA continues to rattle investors with threats that they will make good on their threats to ban menthol cigarettes – a move that would hurt BTI more than most because it is Reynolds American unit is the owner of Newport, the leading menthol brand. However the question is has the fallout already been priced into the stock. The stock has dropped over 50% in recent months, which does not make sense for, aside from the proposed ban, operates in what is considered a defensive sector. Consumers tend to indulge their vices regardless of market conditions. As evidence of this, tobacco and liquor stocks have historically been the top two sectors in terms of market returns over the past 80 years. This would make the drop in the company's stock seem a little overdone. And even if the ban is implemented, the company only reports 25% of its profits as coming from menthol products, making it likely that they could weather the storm just fine. The bottom line is this stock offers a great dividend yield of just under 7% and has a P/E ratio of just 9x earnings.
About British American Tobacco
British American Tobacco p.l.c. engages in the provision of tobacco and nicotine products to consumers worldwide. It also offers vapour, heated, and modern oral nicotine products; combustible cigarettes; and traditional oral products, such as snus and moist snuff. The company offers its products under the Vuse, glo, Velo, Grizzly, Kodiak, Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, Camel, Natural American Spirit, Newport, Vogue, Viceroy, Kool, Peter Stuyvesant, Craven A, State Express 555 and Shuang Xi brands.
Read More - Current Price
- $36.24
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 1 Buy Ratings, 0 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $33.00 (8.9% Downside)
#7 - Qualcomm (NASDAQ:QCOM)
Qualcomm (NASDAQ: QCOM) - Does Qualcomm know something that other investors don’t? A $30 billion share buyback has investors saying yes. The company’s stock fell dramatically after their bid to merge with NXP Semiconductor fell through. However, investors seem to see the stock buyback as a reason to buy. In response, shares have advanced 40% in recent months only to see them get punished again as all tech stocks declined in October and the company had a lackluster earnings report. But Qualcomm does have some metrics in its favor. It has a licensing franchise on 3G and 4G patents that can provide the company with a predictable and hefty cash flow for the foreseeable future. And although it faces increased competition, the market for 5G is looking like it will also be favorable. Most notably, Qualcomm has been embroiled I litigation with Apple. This looks to be trending in Qualcomm’s favor. No matter what happens, a mere resolution would help stabilize the struggling stock. But if investors are looking for an immediate reason to buy, they can look at a 4.5% dividend yield.
About QUALCOMM
QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, computing, multimedia, and position location products.
Read More - Current Price
- $152.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $208.00 (36.0% Upside)
Santa Claus may be coming to Wall Street, but the news may not be jolly for every stock. However, when investors are looking for stocks that show a strong potential to post gains into 2019, these seven stocks should receive strong consideration. For these stocks, it looks like the bad news has already been factored into their stocks. In fact, for almost all of these stocks, their stock price is currently trading at levels that are virtually screaming buy.
From e-commerce and tobacco to oil and gas and technology, these stocks spread joy across a variety of sectors. To be sure, the market remains an uncertain place. And that uncertainty will continue into 2019. But every market presents opportunities, and this market is no different. These seven stocks have had some lumps of coal put in their stocking and they appear to be ready to deliver sweet rewards to investors who are savvy enough to snap them up.
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