In This Article:
The low valuation multiples for value stocks provide a margin of safety that growth stocks rarely offer. However, the challenge lies in determining whether these cheap assets are genuinely undervalued or simply on sale due to their potentially deteriorating business models.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. That said, here is one value stock offering a compelling risk-reward profile and two climbing an uphill battle.
Two Value Stocks to Sell:
Micron (MU)
Forward P/E Ratio: 8.9x
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NYSE:MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
Why Do We Think Twice About MU?
-
Annual sales growth of 3.5% over the last two years lagged behind its semiconductor peers as its large revenue base made it difficult to generate incremental demand
-
Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 14.7%
-
Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
At $93 per share, Micron trades at 8.9x forward price-to-earnings. To fully understand why you should be careful with MU, check out our full research report (it’s free).
Fortune Brands (FBIN)
Forward P/E Ratio: 13.6x
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE:FBIN) makes plumbing, security, and outdoor living products.
Why Are We Out on FBIN?
-
Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
-
Sales were less profitable over the last two years as its earnings per share fell by 15.2% annually, worse than its revenue declines
-
Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.4 percentage points
Fortune Brands’s stock price of $61.19 implies a valuation ratio of 13.6x forward price-to-earnings. Read our free research report to see why you should think twice about including FBIN in your portfolio, it’s free.
One Value Stock to Watch:
Qualcomm (QCOM)
Forward P/E Ratio: 13.4x
Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.