Philip Morris International Inc. PM, -0.37%
said Wednesday it’s making progress toward its 2025 goal of being a smoke-free company and that it intends to transform into a broader lifestyle, consumer wellness and healthcare company over time. In its fourth annual integrated report, the tobacco company reiterated that it’s focusing its resources on developing and commercializing smoke-free products that are less harmful than smoking. The company estimates that it has 24.9 million adult users of its smoke-free products, up from 21.7 million in 2021. Some 32.1% of net revenue comes from smoke-free products and 73% of its markets offer such products for sale. The stock has gained 2% in the last 12 months, while the S&P 500 SPX, -0.58%
has fallen 9%.
The stock market had a strong first quarter, with many companies posting big gains. This was a welcome turn of events after a difficult 2022 for investors. However, after the rally, you may wonder which are the most undervalued stocks still out there in the market today.
That’s an especially good question as it seems unlikely that the current market volatility has ended. The war in Ukraine drags on, the regional banking system is under fire, inflation is too high and the Federal Reserve continues to hike interest rates.
All this makes it imperative that investors buy the most undervalued stocks to ensure a margin of safety in this unsettled economy.
There are, of course, a lot of different metrics folks can use to identify the most undervalued stocks. For the sake of this article, I’ll be picking seven of the best companies from Morningstar’s 5-star stock category, as these come from the small list of companies that their analysts believe are trading at dramatic discounts to fair value.
Citigroup (NYSE:C) has a reputation for running into trouble. The bank played its cards poorly during the 2008 financial crisis, and it has had several other reputational stumbles since that point.
That said, at some price, a firm’s issues are reflected in the valuation, and Citigroup is at that point.
C stock tumbled once again in March following the broader concerns around the health of the American banking sector. The too-big-to-fail banks such as Citigroup should benefit as deposits move from regional banks to national banks. In a crisis, it’s better to be big, and Citigroup is one of the nation’s largest retail banks and is third in overall asset size.
The valuation has also gotten silly. Shares are going for just half of book value. The stock is also selling for just seven times forward earnings. This sets Citigroup up to both repurchase stock and pay a 4.4% dividend yield. Morningstar believes C stock is worth $75, making it among the most undervalued stocks out there.
Avnet (NASDAQ:AVT) is an electronics distribution firm, focusing on reselling semiconductor chips and equipment. Its advantage comes from scale. There are few players that have as broad a reach and depth of connections in its industry. To that point, Avnet generates roughly $25 billion in annual revenues.
But, given the current glut in the semiconductor market, traders have refused to give Avnet the valuation multiple it deserves, which is what puts it among the most undervalued stocks.
In fact, astonishingly enough, AVT stock is selling at just six times forward earnings. Sure, the semiconductor cycle is currently on the downswing. But, distributors take much less risk than the actual manufacturers or chip designers. Avnet has proven to be robust in past semiconductor cycles.
And, in the meantime, the company is returning cash to shareholders both via a 2.5% dividend and its huge buyback program. The company bought back 8% of its outstanding shares in the past 12 months alone. That’s what makes it one of the most undervalued stocks you’re missing out on.
Broadridge Financial Solutions (BR)
Broadridge Financial Solutions (NYSE:BR) is an unheralded financial services company. The firm is integral to much of what makes Wall Street tick.
It got its start as a spin-off from Automatic Data Processing (NASDAQ:ADP). ADP had built up an operation to process shareholder proxy statements that didn’t fit with its core payroll business. And thus, Broadridge was born.
In subsequent years, Broadridge has added management and document processing for wealth managers, investment banks, and other such financial professionals. It also maintains a near monopoly on proxy services.
This is an ideal sort of business. It provides an integral service to brokerages, investment banks and other end clients. And its fees are low enough to not be a meaningful part of its customers’ bottom line. And, with minimal competition, Broadridge has been able to maintain fat profit margins.
Broadridge shares have traded flat since 2020 while earnings growth continues to hum along. As a result, shares are now going for just 21 times forward earnings. Morningstar believes shares are worth $185, versus a current price of $145. Given Broadridge’s tremendous earnings growth track record, investors are likely to bid the company back up to a more generous valuation in due time.
PayPal (NASDAQ:PYPL) seemed like an obvious winner in 2020. With people stuck at home, they’d have to move much of their financial lives to digital means. It wasn’t just e-commerce, PayPal seemed prepared to benefit from trends such as remote work and employers looked for new ways of hiring and paying their employees.
However, the early surge in transaction volumes seen in 2020 and 2021 quickly faded. Along with that, the tech industry went into a tailspin. PYPL stock plunged from a high of $300 to just $76 today.
That seems like an overreaction. Unlike many tech peers, PayPal is profitable. Shares are going for just 16 times forward earnings today. I’d also note that the company is continuing to grow revenues at nearly 10% a year, and analysts expect earnings growth of at least 10% annually going forward.
PayPal’s core business, while slower, is still showing steady growth. The stock price, however, would suggest that things were far worse than they actually are. To that point, Morningstar believes PYPL stock is worth $135 per share which offers tremendous upside from today’s price.
Global Payments (GPN)
Global Payments (NYSE:GPN) has gotten caught up in the same storm as PayPal. However, it’s arguably in an even better position. Unlike PayPal, nothing has gone wrong with Global Payments’ core business.
That business, merchant acquiring, is attractive. Global Payments serves as a middleman between the credit card companies and vendors such as restaurants and retail stores. Global Payments provides payment terminals and related services such as fraud prevention, tax and accounting reporting, and transaction analysis.
The payments industry has plummeted since 2021 thanks to firms like PayPal coming up short of investors’ lofty expectations. GPN stock has lost more than half its value since its peak two years ago.
The thing is, Global Payments hasn’t had its operations impaired. In fact, earnings are continuing to grow at a double-digit clip, even as the stock price has plummeted. GPN stock now trades at just 10 times forward earnings. Morningstar’s Brett Horn believes shares are fully 41% undervalued today.
Sabre Corp (SABR)
Sabre (NASDAQ:SABR) is one of the three primary global distribution systems (GDS) for airlines, hotels, and other travel industry companies. GDS operators serve as a marketplace between airlines, cruise lines, passenger railroads, etc. on one side, and buyers such as travel agents and online booking websites on the other.
Sabre, and its two competitors, get a cut of every transaction that passes through these GDS ticketing platforms. As airline traffic has come roaring back over the past two years, it has given the GDS firms a tailwind.
That said, Sabre has failed to capitalize so far. It invested heavily in upgrades to its tech infrastructure just prior to the pandemic. Business came to a halt before these upgrades could pay off; instead, Sabre ended up undercapitalised and in financial trouble.
The company has struggled to get back on track and reach profitability. However, there’s a high-quality business lying under the surface here. Morningstar believes Sabre can take flight once again; its analyst pegs fair value at $10.50 versus today’s price in the low $4 range.
Verizon Communications (VZ)
Verizon Communications (NYSE:VZ) is one of America’s three prominent mobile telephony providers. Traditionally, investors have gravitated to these companies thanks to their stable cash flows and large dividends.
However, AT&T (NYSE:T) threw a spanner in the works when it slashed its dividend. Investors dumped both AT&T and Verizon shares following that. But AT&T’s problems were self-inflicted, related to that firm taking on excess debt to make unsuccessful acquisitions.
Verizon, by contrast, is still in a strong competitive position. Yes, it has seen a slowdown in earnings growth recently. That has come as Verizon has invested heavily in 5G and other next-generational telecom infrastructure. However, these investments should pay off in due time. Meanwhile, VZ stock has gotten absolutely hammered over the past year, with shares losing nearly a quarter of their value.
It’s rare that telecom companies end up being dramatically mis-priced. But Morningstar believes that is exactly the situation with Verizon today. Analyst Michael Hodel pegs fair value at $57 per share versus a current price of $39. The massive discount available today probably won’t last long, and in the meantime, shares offer a 6.7% dividend yield.
On the date of publication, Ian Bezek held a long position in VZ, GPN, BR stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.
When stock markets ended the first quarter of this year with strong gains, speculators bought the most short-sold stocks. They bet that despite the deteriorating business conditions, the stock would overcome unfavorable valuations.
Although bears hold a high short float against the stock, traders are betting on a short squeeze. The stock price rises rapidly when bearish investors buy back stock to avoid further losses. However, buy-and-hold investors should avoid the most short-sold stocks at all costs.
Market sentiment may reverse in an instant. The buying euphoria in the three stocks discussed below could fall again without warning.
Its revenue grew by 13.4% Y/Y to $2.71 billion. Chewy is among the most short-sold stocks. Markets are skeptical that the company will grow its net sales beyond its 10% to 12% forecast for the year.
Chewy expects a slight decline in EBITDA guidance for this year. Chief Financial Officer Mario Marte said that it is prioritizing cost efficiency over earnings. To better fit more of an order in a single package, it needs to develop its operating logistics.
Shareholders should brace for a correction when the stock trades at a price-to-earnings of over 300 times. Chewy’s competitors may also expand their gross margin by increasing profits per shipment. The company may need to increase its sales, general, and administration costs to support margins. This is already pressuring Chewy’s EBITDA this year.
Carvana (NYSE:CVNA) stock has a short percentage of float of 73.9%, according to Stockrover. On March 22, it announced an exchange offer to cut its interest costs by around $100 million. The offer will cut its unsecured bond debt by $1.3 billion.
Carvana, which speculators thought would disrupt the used automobile market during the pandemic, has troubling financing issues. Bondholders must trade in their debt, which yields around 30% with new debt.
The company is offering only between 63 cents and 81 cents on every dollar. Unfortunately, the business will probably weaken further. This increases the risk of Carvana defaulting on its bonds in the future.
In the fourth quarter, Carvana posted a 23% decline in retail unit sales to 86,977. Its net loss margin worsened to -50.8%, compared to -4.8% last year. The firm lost $7.61 a share. The company expects retail units sold in Q1 2023 to fall again. It will need to work down its large inventory, incurring more losses.
Upstart (NASDAQ:UPST) is an artificial intelligence lending platform. UPST stock once traded at over $300 in 2021, well before the hype of AI. This is among the most short-sold stocks at a 41.0% short percent of the stock’s float.
The company, which posted a 52% decrease in revenue to $147 million in Q4 of 2022, runs a broken business. It lost $58.5 million when its fee revenue fell. The company posted revenue of only $156 million. In addition, the loan business is worsening.
The volume of loan transactions across its platform fell by 69% to 154,000 loans. Automotive loans are stagnating. People are canceling plans to buy vehicles amid high inflation eroding their disposable incomes.
The company paused its small business loan. CFO Sanjay Datta said it will get back to those customers at the right time. The unknown timeline should trouble investors.
Shareholders should brace for an erosion in Upstart’s unrestricted cash position. The company needs to deploy cash to reduce its net debt. After it wasted around $25 million in buying back stock, expect Upstart to buy more shares.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get actionable insight to achieve strong investment returns.
In times of economic uncertainty and market volatility, investors often turn to defensive stocks to protect their portfolios from market downturns. Defensive stocks are relatively immune to economic fluctuations and tend to perform well in good and bad times. They are often found in industries such as utilities, consumer staples and healthcare, which provide products and services that people use regardless of the state of the economy.
This article will discuss three defensive stocks that investors can consider adding to their portfolios to navigate the current market environment. These companies have a track record of steady growth and stable earnings, making them attractive options for risk-averse investors who prioritize capital preservation over high returns.
In my view, Restaurant Brands (NYSE:QSR) is one of the best defensive stocks in this market right now. This company owns some of the best fast-food brands in the market. With Burger King, Tim Horton’s, Popeye’s Louisiana Kitchen and recently-acquired Firehouse Subs, Restaurant Brands boasts some of the most renowned world-class franchise businesses in the world. This makes the company an excellent choice for risk-averse investors seeking a stable investment with steady growth potential.
From a technical standpoint, QSR stock is currently seeing an upward trend. Interestingly, the company’s prospects have beenpositively impacted among technical analysts due to its strong fundamentals and growing market share in the food services industry.
While relatively stable compared to other stocks, QSR stock has endured a tumultuous few years. Like many other companies, it was heavily affected at the start of the pandemic, resulting in a significant decline in sales. The company’s stock price dropped drastically, going from approximately$90 per share before the pandemic to a low point in the mid-30s within a few weeks.
Like other stocks, QSR quickly rebounded and has remained in a relatively stable trading range since then. In 2022, the company finally witnessed a considerable surge in sales that surpassed its pre-pandemic levels, causing the stock to rally impressively.
Given the increased market risks and the fact Restaurant Brands International’s shares seem reasonably priced, there may be more attractive alternatives for investors seeking to purchase stocks in February 2023. That said, for those who own QSR stock, this is a must-hold in this period of economic uncertainty.
Bank of America (BAC)
Source: Michael Vi / Shutterstock.com
One of the biggest banks in the U.S., and in the world for that matter, Bank of America (NYSE:BAC) is another company I’d put in the defensive stocks to buy in an uncertain market bucket.
This top lender has seen incredibly strong earnings and profit growth of late. Accordingly, given the rather uncertain outlook for banks, it’s clear that BAC stock remains a top pick among many individual and institutional investors. That’s mainly due to the company’s diversified business model, with retail banking, corporate banking, wealth management, asset management and insurance services divisions.
Like other banks, Bank of America experienced a surge in 2022 due to the Federal Reserve’s aggressive interest rate hikes. The Fed raised rates by 25 basis points in March, 50 basis points in May and then continued to grow rates by 75 basis points at each subsequent meeting. The year concluded with a 50-point rate hike, placing the federal funds rate banks charge each other for overnight loans in the range of 4.25% to 4.5%.
Bank of America has another potential advantage, which is itscredit quality. While the company’s net charge-off ratio increased in the fourth quarter, the proportion of nonperforming loans decreased. Indeed, these metrics will be crucial to monitor in the first few quarters of 2023. Nonetheless, the bank has diversified its loan portfolio over time, reducing its credit risk overall.
Bank of America is currently a sound investment due to its low forwardprice-to-earnings ratio of 9.5 and its stable and sustainable dividend yield of 2.6%, with a payout ratio of 27%. These factors make it an attractive purchase at present.
It is anticipated that the bank will be able to effectively handle the uncertain economic conditions of 2023. The bank is expected to perform exceptionally well when the economy improves in 2024.
Occidental Petroleum (OXY)
Source: T. Schneider / Shutterstock.com
Last on this list of defensive stocks to buy is Occidental Petroleum (NYSE:OXY). This energy conglomerate interests a relatively wide range of investors, including the one and only Warren Buffett. Indeed, any stock Buffett taps as a core holding belongs on a list of defensive stocks.
The company has a fully integrated business model that concentrates on producing oil and gas and manufacturing basic materials, petrochemicals, polymers, and specialized chemicals. Last year, Occidental Petroleum outperformed many competitors due to its diversified strategy.
The sizeable, self-governing enterprise that extracts oil and natural gas has been putting money into properties in the U.S., Middle East, Africa and Latin America that have reduced production expenses and lower drop-off rates. This move fortifies the company’s ability to endure fluctuations in oil prices.
The company’s leadership has stated as long as the prices of oil within the country remain above $40, the enterprise can maintain its current dividend through its ongoing activities. Furthermore, the company has utilized a significant portion of its excess funds to lessen its debts.
Over the long-term, OXY stock is worth holding and adding to on dips. Currently, this stock is on my watch list.
On the date of publication, Chris MacDonald 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.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
Well-known investment advisor Ed Yardeni believes that U.S. stocks are poised to rally this year. Speaking to CNBC last week, Yardeni said that the banking mini-crisis will be “very well-contained” by the Federal Reserve and Federal Deposit Insurance Corporation (FDIC). He noted that the banks’ issues should prevent the Fed from raising interest rates further and that he thinks the S&P 500 could surge to 4,600 by the end of this year — a 12% rise from here. If you share Yardeni’s bullish outlook — as I do — it’s time to think about stocks to buy for a market rally.
With many investors looking for a recession that probably won’t materialize, I believe growth stocks that are highly leveraged to the American economy are a good bet. But given the elevated interest rate environment and the cautiousness of many investors, I would avoid names with stratospheric valuations unless they have strong disruptive potential.
The seven names below stand to benefit from stronger-than-expected economic growth and are reasonably valued stocks to buy for a market rally.
General Electric (NYSE:GE) is one of the world’s largest and most-diversified industrial companies. I’ve included it on today’s list of stocks to buy for a market rally for two reasons.
The first is that the company is poised to benefit from strong demand for travel given its huge aircraft engine business.
Travel has made a full comeback, with spending in March up 9% year over year and 5% from 2019 levels, according to the U.S. Travel Association. While international travel spending remains below pre-pandemic levels, it is improving. Further, more than half of Americans said they are planning toprioritize leisure travel spending. And additional research by the Global Business Travel Association suggests business travel is expected to pick up this year as well.
Robust travel demand has led to airlines ordering more planes. Boeing (NYSE:BA) and Airbus (OTC:EADSY) are the only large passenger aircraft manufacturers in the world, and GE counts both as customers. Thanks to a 26% jump in orders for its aerospace division in Q4, revenue for the segment was up 25% year over year. And as Seeking Alpha’s Rob Williams recently noted, shares popped to multiyear highs after management said this demand would drive revenue for years to come, including double-digit growth this year.
The other reason I like GE stock here is that the company’s Grid Solutions unit has a great deal of growth ahead of it. The segment provides “power utilities and industries worldwide with equipment, systems and services to bring power reliably and efficiently from the point of generation to end power consumer.”
Already this year, GE has won a multi-million-dollar contract from the Nepal Electricity Authority to strengthen the country’s power transmission network. Further, two “GE-led consortiums” were awarded five multiyear contracts to build high-voltage direct current systems for wind power generation in the Netherlands and Germany.
GE stock is up 45% so far this year. Despite its recent rally, shares change hands for a very reasonable 17.5 times trailing operating cash flow.
Revance Therapeutics (RVNC)
Revance Therapeutics (NASDAQ:RVNC) has developed an injection called Daxxify that combats frown lines. Approved by the Food and Drug Administration (FDA) in September, the product has emerged as a competitor to Botox. The big selling point for Daxxify is that it lasts six months, about twice as long as Botox.
The company reported Q4 results in late February. Revenue surged 92% year over year to $49.9 million. The increase was partially driven by Daxxify, which generated strong sales even before its commercial launch at the end of last month.
“[W]e’ve been very pleased with the strong initial uptake and positive feedback from both injectors and consumers,” said Revance Chief Executive Officer (CEO) Mark Foley during the company’s Q4 earnings call.
Following the release of the quarterly results, Barclays reiterated its “overweight” rating on RVNC stock and raised its price target to $40 from $37, saying it offers a compelling risk/reward proposition. The new target implies upside of 20% from current levels.
As the economy strengthens, consumers will have more disposable income to pay for things like Daxxify. I believe the company’s $2.8 billion market capitalization far understates its value given the vast potential of Daxxify.
ON Semiconductor (ON)
On Semiconductor (NASDAQ:ON) is a chipmaker that’s highly leveraged to the automotive and industrial end markets, both of which are growing rapidly. In fact, in the fourth quarter of 2022, those two end markets generated about 83% of On’s total sales.
Fueled by electrification and the proliferation of advanced driver-assistance systems (ADAS), On’s revenue from its automotive customers is expected to grow at an impressive compound annual growth rate (CAGR) of 17% from 2021 to 2025, while its industrial revenue is poised to increase at a CAGR of 7%.
In a March 7 discussion with an analyst, On CEO Hassane El-Khoury noted, “We’ve had strong last couple of years, and we see that strength sustaining.”
On March 8, Bank of America increased its price target for ON stock to $100 from $90, citing El-Khoury’s comments along with a new deal that the company signed to supply BMW (OTC:BMWYY) with chips for its EVs. The new target is more than 27% above the current share price.
Finally, ON stock is changing hands at an attractive price-to-earnings (P/E) ratio of 18.5, representing a discount to its five-year average P/E of 31.
Deere & Company (DE)
Deere & Company (NYSE:DE), a leading maker and marketer of farm machinery, is poised to benefit from two important trends: continued high food prices and Washington’s huge infrastructure spending.
Because of high food prices, farmers in America and other countries are “in the money,” as they say, enabling them to pay high prices for Deere’s farm machinery and upgrade their machinery often.
On the infrastructure front, Investor’s Business Daily contributor Michael Molinski pointed out in December that Deere should benefit from the Infrastructure Investment and Jobs Act passed last year, since the company sells a significant amount of construction equipment. Meanwhile, the Inflation Reduction Act, which includes billions of dollars for renewable energy and mining projects, should drive sales of the company’s mining and other equipment.
Also likely to work in Deere’s favor in 2023 is the normalization of supply chains, as this headwind was a drag on the company’s financial results last year. Finally, Deere is a play on artificial intelligence (AI), one of the year’s hottest trends, with its development of “fully autonomous” tractors.
Analysts expect the company to grow revenue by 13.4% to $54.4 billion this year and for earnings to increase by 31% to $30.49 per share. I wouldn’t be surprised to see the company exceed these levels. DE’s construction unit, in particular, should benefit from stronger-than-expected U.S. economic growth.
Macy’s (NYSE:M) is a good way to play several important macro trends. These include U.S. economic growth that’s likely to beat expectations, continued strength in the labor market and increasing consumer discretionary spending.
The retailer reported Q4 results on March 2. Adjusted earnings, excluding certain items, of $1.71 per share came in well above analysts’ average estimate of $1.57, while revenue of $8.3 billion was in line with estimates. While same-store sales were down 2.7% on a year-over-year basis, they were up 3.3% from the fourth quarter of 2019.
In a note to investors on March 3, TD Cowen increased its price target on M stock to $29 from $27, implying upside of 53%. The bank noted Macy’s ability to meaningfully cut its inventories while “driving profitable sales growth and realizing strength in gifting occasion-wear beauty and luxury in 4Q inclusive of a better January,” according to The Fly.
M stock is trading with a bargain basement trailing price-earnings ratio of 3.2 and has a sizeable dividend yield of 3.5%.
Freeport McMoran (FCX)
Like Macy’s Freeport McMoran (NYSE:FCX) is a play on multiple strong macro trends. In the case of FCX, the copper miner is well-positioned to benefit from U.S. economic growth, the energy transition, America’s onshoring trend and the electrification of transportation. Additionally, the reopening of China’s economy bodes very well for FCX stock.
Last month, Goldman Sachs called its outlook for copper “extraordinarily positive” due to record-low inventories and supply that’s likely to peak next year. The bank expects copper prices to reach $10,500 a ton in the near term and $15,000 a ton in the longer term, up from around $8,900 a ton currently.
Even more upbeat is Trafigura. On March 20, the copper trader said prices could hit $12,000 per ton within a year due to a shortage of the metal.
Higher copper prices translate into more profits for Freeport McMoran and its shareholders.
Cleveland Cliffs (CLF)
Steelmaker Cleveland Cliffs (NYSE:CLF) is another name that will benefit from stronger-than-expected American economic growth. In particular, CLF stock is likely to get a lift from better-than-expected auto sales, as the company is the “largest supplier of steel to the automotive sector,” according to S&P Global.
CLF will also be helped by the onshoring trend and the Infrastructure Investment and Jobs Act, as it names “infrastructure” and “manufacturing” as two of its other important end markets.
On April 3, Seeking Alpha noted the company has raised its spot market base prices five times already this year, indicating strong demand.
As of the date of publication, Larry Ramer owned shares of GE and FCX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
We’re starting to see a shakeout in the electric vehicle (EV) sector as some automakers pull ahead and others fall behind. With established motor vehicle makers such as General Motors (NYSE:GM) and Toyota (NYSE:TM) spending billions to electrify their fleets, it’s getting harder for smaller start-up companies to compete. Plus, some of the bigger players, such as Tesla (NASDAQ:TSLA) have slashed prices to drive sales, serving to undercut competitors and pressure margins. It’s making for an exciting time in the fast-evolving EV industry. The stakes remain high as the transition from gas-powered to electric vehicles accelerates. U.S. investment bank Goldman Sachs recently forecasted that electric vehicles will account for most (61%) of global automotive sales by 2040. As electric vehicle production moves into the fast lane, we look at three sorry EV stocks to sell in April before it’s too late.
EV Stocks to Sell: Rivian Automotive (RIVN)
Sadly, shares of Rivian Automotive (NASDAQ:RIVN) peaked in the weeks immediately after its November 2021 initial public offering (IPO). Since then, RIVN stock has plunged 89%, including a 54% decline in the last six months. In recent weeks, the stock has fallen from one all-time low to another. The company’s market debut was hyped due to several high-profile investments and partnerships with Ford Motor Co. (NYSE:F) and Amazon (NASDAQ:AMZN). But those investments and deals have since hit the skids.
What’s left at Rivian is a company that is hemorrhaging cash. Between 2021 and 2022, Rivian’s operating losses swelled to $6.8 billion from $4.2 billion. While sales have grown to $1.6 billion, they have not been enough to offset the heavy operating losses. Profitability seems a long way away for Rivian, and some analysts are now encouraging the company to sell itself before it ends up in bankruptcy court. Investors would be smart to steer clear of this sorry electric vehicle stock.
Lucid Group (LCID)
Since it went public via a special purpose acquisition company (SPAC) in February 2021, the share price of luxury electric vehicle maker Lucid Group (NASDAQ:LCID) has fallen 85% to now trade at less than $10. The plunge in LCID stock has been particularly sad given the potential the company showed with its flagship luxury sedan, the Lucid Air. This is a vehicle that was named the 2022 MotorTrend Car of the Year and seemed well-positioned to give rival Tesla a run for its money in the U.S. market.
Repeated production delays have undone the promise shown by Lucid Group. The company recently announced that it plans to build 10,000 to 14,000 electric vehicles this year, far less than the consensus forecast of 27,000 among Wall Street analysts who cover the company. Lucid’s main manufacturing plant is currently equipped to build 34,000 vehicles annually, but the company has run into continual problems ramping up its output. Most recently, Lucid announced 1,300 job cuts and warned of future losses. Sell.
Since peaking at just under $62 a share in January 2021, the stock of Chinese electric vehicle maker Nio (NYSE:NIO) has cratered by 84%. The decline in NIO stock has been unrelenting, and the share price is now hovering near a 52-week low and at its lowest level since before the Covid-19 pandemic struck in early 2020. The relentless drop definitely makes Nio a sorry EV stock to sell in April. This is from an automaker that competes aggressively against Tesla in China.
Nio’s problems have been both internal and external. On the external front, the company’s production has been hurt by repeated Covid-19 lockdowns in its home market of China, which has hurt its production and sales. The company has also been hurt by European rival Volkswagen’s (OTCMKTS:VWAGY) filing of a trademark lawsuit against it. Internally, Nio has struggled with accounting problems that have led to an investigation by the U.S. Securities and Exchange Commission (SEC). Add it all up, and NIO stock is one for investors to avoid.
On the date of publication, Joel Baglole held a long position in GM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
Many long-term investors appreciate dividend stocks, for many reasons. Companies that pay back a portion of their profits to their shareholders via dividends are generally more reliable. Additionally, dividend stocks provide investors looking for income in retirement with a steady stream of passive income.
Generally, dividends are typically issued by well-established, financially stable companies that are often household names. And the most dependable dividend stocks have long histories of distributing capital to their shareholders. That’s what many such investors focus on.
With the market showing consistent improvement, dividend stocks are likely to provide growth and income in 2023. Investors can choose to reinvest their dividends back into a given stock, or can choose to receive the dividend payments as cash, which can provide a steady stream of income.
Dividend-yielding companies tend to be financially healthy and stable over the long term. They tend to be wise investments anytime, especially in an upward-trending market.
Philip Morris (NYSE:PM) is a leading tobacco company known for the biggest cigarette brands. However, because Philip Morris operates in a highly-regulated industry and faces declining smoking rates, many investors could easily ignore it.
That said, the company is pivoting into an evolving tobacco industry with a strategy that looks to give it a significant advantage over its competitors. That positioning and its substantial dividend make PM stock very potent.
Let’s start with Philip Morris’ dividend. It yields around 5%, which is quite high. This dividend is also relatively stable, having last been reduced in 2008. In 2022, shareholders received $5.04 in dividend payments for each share of PM stock owned. Analysts expect PM stock to increase to $111 in the next 12-18 months, and it currently trades around $100 per share. So, there’s roughly a 15% upside baked into the stock, if analyst estimates are to be believed.
Philip Morris is relying on growth from its smokeless tobacco brands, which have been profitable, while competitors rely more heavily on cigarettes for revenues even as smoking rates continue to decline.
Eli Lilly (LLY)
Source: Jonathan Weiss / Shutterstock.com
Investors should seriously consider Eli Lilly (NYSE:LLY) stock. The company develops and sells medications in various therapeutic areas, including diabetes, oncology, and immunology. Currently, its diabetes drug, Mounjaro, has investors excited.
Overall, Eli Lilly appeals to investors seeking exposure to the pharmaceutical industry and a steady source of income. Those considering Eli Lilly note that this company is a highly-profitable, fast-growing, dependable dividend stock with a potent catalyst for future growth in Mounjaro.
Eli Lilly boasts exceptionally high profitability metrics within a drug manufacturing industry known for increased profitability. Its gross, operating, and net margins exceed the 90th percentile of industry competitors. Further, the firm’s cost of capital is 3.5%, while it returns 21.55% on that capital.
LLY stock provides a modest forward dividend yield around 1.4%. However, this distribution was last reduced in 1986, so it’s dependable. Lastly, Eli Lilly is seeking FDA approval to market the diabetes drug Mounjaro for weight loss. Sales of Mounjaro recently fell short of expectations, but the company still exceeded expectations and could take off when and if Mounjaro receives FDA approval.
Source: Jeff Whyte / Shutterstock.com
Chevron (NYSE:CVX) is an American multinational energy corporation that has seen a very strong 2022. The company is among the world’s largest producers of oil and natural gas. Although Chevron had a strong 2022, challenges related to the volatility of commodity prices and environmental concerns make it somewhat volatile. But its dividend balances those concerns as a source of income. With its current lower price, Chevron looks like a buy.
The energy sector was the strongest performer in 2022. Oil majors, including Chevron, Shell (NYSE:SHEL), and Exxon Mobil (NYSE:XOM) profited more than $132 billion in 2022, returning $78 billion through buybacks and dividends. But investors have shied away from CVX, which has seen its stock price drop considerably of late. Concerns over environmental issues and an unclear situation in Ukraine are likely factors.
That said, 2022 showed that oil demand will likely remain robust for a long time. That gives Chevron a potent catalyst moving forward as it continues to provide revenue for shareholders.
Source: Sasima / Shutterstock.com
Broadcom (NASDAQ:AVGO) stock is a strong choice for investors seeking semiconductor exposure and dividends. The company designs, develop and sells semiconductor and infrastructure software solutions. Its software is used across multiple industries, including telecommunications, data centers, and enterprise software.
Broadcom offers investors growth and income. Currently, AVGO shares currently trade for $575 and carry an average target price of $665. AVGO’s dividend yielded 3.1% at last count, totaling $16.90 in dividends per share last year. Assuming Broadcom continues to pay $4.60 quarterly for all of 2023, it’ll reward investors with $18.40 of dividends in 2023. So, Broadcom’s value could grow to $683.40 per share, which equates to 14.86% growth.
The company will re-release earnings on Mar. 2 after a strong 2022 in which revenues grew 21% to $33.2 billion. Broadcom’s net income growth was even more robust in 2022, growing by 70.65% and reaching $11.495 billion.
Source: JHVEPhoto / Shutterstock.com
Raytheon (NYSE:RTX) stock represents a multinational aerospace and defense company that sells systems and services to commercial, military, and government customers worldwide. Its products include missile defense systems, radar, and communication systems.
Raytheon has paid a dividend for several decades. However, it was reduced in 2021, so investors seeking rock-solid increases should beware. In any case, it provides reliable, if fluctuating, income to long-term investors.
The company has strong growth prospects, including high demand for weapons orders tied to the Ukraine conflict. Additionally, with other geopolitical pressures coming out of China and other regions, there’s plenty to like about the company’s long-term prospects. Although revenues related to the war in Ukraine have been substantial, supply chain issues have hampered deliveries. That suggests Raytheon could move higher if and when those issues are sorted.
Raytheon expects between $72 to $73 billion in sales for fiscal 2023. That would represent between 7.3% and 8.8% top-line growth over its 2022 results. Indeed, I think these numbers should entice investors as this growth rate would significantly outpace the company’s 4% growth seen between 2021 and 2022.
Source: Kikinunchi / Shutterstock.com
Visa (NYSE:V) is a multinational financial services corporation providing payment processing and digital payment solutions for individuals and businesses globally. The company is most notable for offering credit and debit cards but also provides payment gateway and risk management services.
Visa shares include a dividend, yielding very modest 0.8%. So, it won’t provide substantial income or dividends that allow for any sort of significant share repurchases upon reinvestment. That said, the company’s dividend is highly-dependable, having last been reduced in 2008, and growing 17.4% over the last five years. In any case, Visa’s pricing upside is most attractive.
The company’s Q1 revenue grew by 12%, with cross-border travel as a bright spot. Payments volume remained stable. Cross-border volume increased by 22%, suggesting that travel remains strong even as overall economic concerns remain substantial. Visa returned $4 billion to shareholders during the period as well.
Last on this list of dividend stocks to buy is Mondelez (NASDAQ:MDLZ). This diversified consumer goods stock has impressive upside, a solid dividend, and ended 2022 on a strong note. Those factors should interest investors in the snack company that sells Oreos, Wheat Thins, Chips Ahoy!, and BelVita.
Firstly, MDLZ stock has roughly a $10 upside above its current $66 price, according to analyst. This is among the dividend stocks I think is worth buying, despite its modest 2.3% yield. That’s because Mondelez has grown its revenue by 12.3% over the last five years. The math suggests plenty of appreciation for investors willing to buy now.
Additionally, Mondelez’s performance leading into 2023 only strengthens that notion. Revenues increased 9.7% overall in 2022 and grew an even faster 13.5% rate in Q4.
Mondelez’s organic revenue growth reached 12.3% in 2022 and 15.4% in Q4. Its core brands are performing well and should bolster investor confidence in MDLZ as an investment.
On the date of publication, Alex Sirois 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.comPublishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
Etsy — The e-commerce company’s shares rose 3.9% after Piper Sandler upgraded them to overweight from neutral. The firm said that it thinks Etsy’s marketplace strengths will “help reaccelerate active buyer growth.” Shares are down 9.6% in 2023.
Boeing — The aerospace manufacturer’s stock dropped 0.8% after Northcoast Research downgraded shares to a sell rating. The research firm cited expected changes to commercial aircraft production, resetting of consensus forecasts and volume headwinds ahead for Boeing this quarter after communicating with its contacts in the sector.
Tesla — Shares of the electric vehicle maker ticked up nearly 1% in premarket trading. Tesla stock declined 6.1% a day earlier, with investors seemingly responding to the company’s vehicle delivery report from the weekend. Concerns remain that Tesla could slash prices yet again in order to stoke sales at the cost of smaller margins. The company’s first quarter deliveries were below Wall Street expectations, but largely met the outlook that Tesla itself compiled.
Burlington Stores — The apparel retailer’s shares rose 1.6% after Loop Capital upgraded the stock to buy from hold. Analyst Laura Champine wrote in a note that “improved values and brands in stores” will likely result in market share gains for the company.
Comcast — Shares were up 1.5% after KeyBanc upgraded the telecom giant to overweight. “We are above [consensus] on Cable EBITDA on strong ARPUs and operating efficiency drives our adj. EBITDA margins higher,” KeyBanc said. The firm’s price target implies upside of 16% for Comcast. The media company’s shares have jumped 7.8% year to date.
Prudential Financial — The financial services company rose 2.6% after JPMorgan upgraded the stock to overweight. The firm said that although its long-term fundamental outlook for the life insurance industry is negative, it expects healthy near-term results for lower-risk stocks with strong balance sheets.