October has lived up to its reputation as being one of the most volatile for equity investors. In addition to being a month historically known for profit taking, there is a confluence of events that are challenging stock prices. The tariff conflict continues to hang over the market, leaving investors to wonder how it will affect U.S. businesses doing business in China, and what will happen to the U.S. economy if consumers have to adjust to higher prices on imports. The market is also digesting higher interest rates, the consequences to businesses as they digest an economy that is reaching full employment and shrinking margins.
The phrase “perfect storm” can often be overused, but in October 2018, it may be the most apt description. The good news for investors is that after every time the market goes through these correction periods, there are exceptional buying opportunities – and many times the highest gains go to the investors who prudently buy during the dips. Think of it like buying next year’s holiday decorations on December 26. When investors buy stocks that are on sale, they can get both value and growth.
The same is true right now. It may not be the time to dive into the market with both feet, but there are buying opportunities. In this presentation, we're giving you eight stocks that are selling at a discount, but still, show the fundamentals to be great buying opportunities as we approach the fourth quarter earnings season.
Quick Links
- Netflix
- Facebook
- Alphabet Inc.
- Adobe
- Delta Air Lines
- Federal Express
- Freeport-McMoRan
- General Electric
#1 - Netflix (NASDAQ:NFLX)
Netflix (NASDAQ: NFLX) - There is a psychology to many selloffs, and Netflix seems to fit into that pattern very well. The streaming content provider’s stock has dropped nearly 20% since mid-July. While some analysts may have had the stock overvalued, it’s fair to ask if the selloff has gone too far. Here’s why. For starters, Netflix seems to be taking a hit for wanting to be accurate. In three out of their last 10 quarters, the company has overestimated their membership growth. But they are still increasing membership, and a closer look shows that their membership growth in the first half of 2018 was significantly ahead of that from 2017. And the larger question is the story for Netflix is not about granular growth as measured quarter by quarter, it’s about how fast the company is growing. That is a story that shows a 40% year-over-year revenue increase and a 25% growth in streaming subscribers. Some analysts are projecting Netflix’s earnings per share (EPS) to grow by 60% per year for the next five years. All of those metrics don’t take into account their international growth. Membership worldwide has risen 40% year over year with revenue increasing by 65% over the same period. And Netflix has demonstrated an ability to raise their current prices while continuing to add new subscribers.
About Netflix
Netflix, Inc provides entertainment services. It offers TV series, documentaries, feature films, and games across various genres and languages. The company also provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, TV set-top boxes, and mobile devices.
Read More - Current Price
- $883.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 24 Buy Ratings, 9 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $758.76 (14.2% Downside)
#2 - Facebook (NASDAQ:META)
Facebook (NASDAQ: FB) - Of all the FAANG stocks, Facebook may be the one that would seem to offer the least likely growth opportunity. There have been privacy concern issues, for sure. But for a stock that generates over 40 cents of every dollar into free cash, it seems analysts may want to take a second look. After all, Facebook bought back $5.1 billion of their shares in the first half of 2018 and it’s likely that they’ll buy back the same amount, or more, in the second half. Anytime a company is buying back its own shares, they believe that their stock is undervalued. And with Facebook, there’s reason to believe that story is true. And a big reason for that is Instagram, which Facebook owns. According to estimates, approximately 15% of the company's advertising revenue came from Instagram, which represents about $6 billion of the company's $40.7 billion top-line number for 2017. As Instagram’s ad revenue continues to increase in 2018, one analyst projects that Instagram’s ad revenue could account for 33% of Facebook’s overall advertising revenue by 2020. Which brings us back to the free cash flow (FCF) story, and that's the real game-changer for Facebook. The stock is currently trading at approximately 26 times its free cash flow. Even without a higher share price for two years, the anticipated free cash flow would have the company trading at 19 times FCF. That would be an awfully tasty number for investors.
About Meta Platforms
Meta Platforms, Inc engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.
Read More - Current Price
- $565.52
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 37 Buy Ratings, 4 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $634.10 (12.1% Upside)
#3 - Alphabet Inc. (NASDAQ:GOOGL)
Alphabet Inc. (NASDAQ: GOOGL) - It almost seems absurd to put a company that’s trading at over $1,100 per share at this writing as being “on sale”. But that doesn’t change the fact that Alphabet, which is the parent company of Google is down from highs over $1,200 in early July. Unlike Facebook, there is no lack of transparency about where Alphabet’s revenue comes from. Google generates 86% of its revenue from advertising. Its Google Ad Words is the de facto standard for businesses that are becoming more dependent on digital media for their advertising spend. Google is still considered the industry’s leading search engine and they continue to see growth through YouTube. Google is also getting set to launch three new products (their Pixel 3 Smartphone, Pixel Slate tablet, and Home Hub device) that may allow the company to generate even more revenue. The company does face some headwinds related to their stated desire to push ahead with developing a censored search engine for China. The very fact that the company remains so committed to the project, even while there remains no guarantee that such a search engine would ever launch, speaks to the impact that expanding into the Chinese market would offer Google as they strive to become more competitive in other markets.
About Alphabet
Alphabet Inc offers various products and platforms in the United States, Europe, the Middle East, Africa, the Asia-Pacific, Canada, and Latin America. It operates through Google Services, Google Cloud, and Other Bets segments. The Google Services segment provides products and services, including ads, Android, Chrome, devices, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Search, and YouTube.
Read More - Current Price
- $175.98
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 35 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $205.90 (17.0% Upside)
#4 - Adobe (NASDAQ:ADBE)
Adobe (NASDAQ: ADBE) - Yet another technology stock that merits a closer look despite the recent selloff is Adobe. The undisputed leader in cloud space technology is primed to benefit from an industry that is forecasting demand for cloud services to grow over the next 2-3 years. In their most recent earnings guidance, the company forecast 20% growth for its 2019 overall sales and digital media revenue. Unlike the FAANG stocks, Adobe made it through the tech sell-off in July relatively unscathed and the stock has continued to rise. In fact, some analysts have taken note of how Adobe has continued to rise in a sector where many companies have not. This is why many analysts are bullish on the stock’s prospects going forward and why, even with their stock trading at a record level right now, the best may be yet to come, which would make their current price seem like a bargain. Not only does the company pass the smell test from a fundamental analysis viewpoint, but the technical indicators look great as well. Their stock chart for 2018 shows rhythmic, symmetrical support and a stock price that has risen to new heights off support levels.
About Adobe
Adobe Inc, together with its subsidiaries, operates as a diversified software company worldwide. It operates through three segments: Digital Media, Digital Experience, and Publishing and Advertising. The Digital Media segment offers products, services, and solutions that enable individuals, teams, and enterprises to create, publish, and promote content; and Document Cloud, a unified cloud-based document services platform.
Read More - Current Price
- $499.50
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 7 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $606.40 (21.4% Upside)
#5 - Delta Air Lines (NYSE:DAL)
Delta Air Lines (NYSE: DAL) - Airline stocks are always somewhat hard to forecast, but after a share price that dropped below $50 per share and still continues to trade about 10% off its year-to-date high near $60, it may be time for a closer look. One of the issues suppressing the stock, along with investor patience, is fuel prices. As crude oil prices continue to increase, investors have some reason to question whether or not the stock will grow. As a result, despite Delta’s optimistic projection of a significant increase in revenue per available seat mile (RASM) for the third quarter, some analysts are more concerned about the bigger picture for the stock. With higher fuel costs, at least in the short term, Delta will be hard pressed to meet its goal of a flat pre-tax margin (it had been negative). However, with a recently renovated fleet and the company's ability to keep non-fuel costs in line, investors who have the patience to ride this stock out until oil prices level out, or start to decline, may be rewarded with a stock that is looking to be selling at a nice discount.
About Delta Air Lines
Delta Air Lines, Inc provides scheduled air transportation for passengers and cargo in the United States and internationally. The company operates through two segments, Airline and Refinery. Its domestic network centered on core hubs in Atlanta, Minneapolis-St. Paul, Detroit, and Salt Lake City, as well as coastal hub positions in Boston, Los Angeles, New York-LaGuardia, New York-JFK, and Seattle; and international network centered on hubs and market presence in Amsterdam, Bogota, Lima, Mexico City, London-Heathrow, Paris-Charles de Gaulle, Sao Paulo, Seoul-Incheon, and Tokyo.
Read More - Current Price
- $63.64
- Consensus Rating
- Buy
- Ratings Breakdown
- 14 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $71.22 (11.9% Upside)
#6 - Federal Express (NYSE:FDX)
Federal Express (NYSE: FDX) - Federal Express seems to be an example of how you can always find something negative if you look closely enough. And analysts certainly seem to be doing just that. The stock has been steadily tumbling since reaching a high of around $275 in January. Before the recent sell-off, it was still trading around $250. Now, it's around $220 despite solid earnings. One of the reasons for this is the company's admission that the continuing trade conflict with China is hurting their business. But that alone shouldn't explain the precipitous drop. The company took the rather unique approach of saying that in future conference calls, they would stop reviewing individual sectors and focus on the company as a whole. Market analysts seem to be approaching this upcoming lack of information with the same disdain the media has to a Bill Belichick post-game press conference. The biggest challenge for FedEx going forward is a negative free cash flow and an aging infrastructure that will be a drag on profits and potentially allow Amazon to encroach on this space.
About FedEx
FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. It operates through FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services segments. The FedEx Express segment offers express transportation, small-package ground delivery, and freight transportation services; and time-critical transportation services.
Read More - Current Price
- $288.03
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 17 Buy Ratings, 8 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $316.04 (9.7% Upside)
#7 - Freeport-McMoRan (NYSE:FCX)
Freeport-McMoRan (NYSE: FCX) - Freeport-McMoRan is garnering a lot of attention from investors. One of the reasons for this is what seems to be a resolution for a deal surrounding its flagship mining property in Indonesia. That and the fact that CEO, Richard Adkerson, has announced a willingness to sell the company. That will always raise eyeballs. However, while that looks unlikely at this time, one thing that looks positive for the company is their fundamentals. All in all, with a market capitalization of around $17.7 billion, the company appears to be largely undervalued, and a look inside the numbers shows that the stock might be poised for a lift. The company’s most recent earnings report showed a healthy balance sheet with debt on the decline and a positive free cash flow of $827 million. The company also showed a slight increase in year-over-year earnings and sales and shareholders were able to retain $1.46 billion (or $0.60 per share). In the next fiscal year, the company is forecasting total earnings per share that would justify a stock price around $15.07 per share, well above where it is currently trading around $12 per share.
About Freeport-McMoRan
Freeport-McMoRan Inc engages in the mining of mineral properties in North America, South America, and Indonesia. It primarily explores for copper, gold, molybdenum, silver, and other metals. The company's assets include the Grasberg minerals district in Indonesia; Morenci, Bagdad, Safford, Sierrita, and Miami in Arizona; Chino and Tyrone in New Mexico; and Henderson and Climax in Colorado, North America, as well as Cerro Verde in Peru and El Abra in Chile.
Read More - Current Price
- $43.70
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 9 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $54.00 (23.6% Upside)
#8 - General Electric (NYSE:GE)
General Electric (NYSE: GE) - When you've hit the bottom, there's nowhere to go but up, right? That might be the cynical argument for buying General Electric. However, there is a brighter story. Their new CEO, Lawrence Culp, successfully turned around the industrial company Danaher and will bring the principles of the Toyota Production System (TPS) to General Electric. Can analytics make a difference? The company is betting on it and with good reason. GE has been trying, unsuccessfully to divest itself of their underperforming business units while identifying and growing their profitable ones. That is where Culp succeeded at Danaher and the thought is he can achieve similar success to GE. With a stock price currently around $12 a share, the stock has actually climbed around 13% since Culp was named to the position. While the stock may not be for the faint of heart, there does seem to be evidence of a bright future for GE shares.
About General Electric
General Electric Company, doing business as GE Aerospace, designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. It also offers aftermarket services to support its products. The company operates in the United States, Europe, China, Asia, the Americas, the Middle East, and Africa.
Read More - Current Price
- $177.98
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $200.93 (12.9% Upside)
Corrections are a part of every market, even a bull market like the one that investors are currently enjoying. During these times, there is always profit potential, because frequently corrections provide the opportunity for investors to buy great stocks while they’re on sale. This latest correction is no different. From tech stocks to manufacturing, there are some appealing stocks with great brand names that are now offering investors a chance to swoop in and add to their portfolio at attractive prices.
Just as October is a notoriously painful month for stock, the run-up to the Holiday season is typically a time when the market experiences some of its greatest gains. But as the saying goes, you can’t win if you don’t get in the game. These eight stocks look to be screaming “Sale” right now, making them strong options for you to consider in your portfolio.
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