It's been a tough past few weeks for stocks. Despite one brilliantly bullish day last week, the S&P 500 is still down 15% from its February peak, and seemingly still testing the waters of lower lows.
As veteran investors can attest, however, such setbacks are fantastic long-term buying opportunities. Five years from now most all of the market's recently upended tickers will likely be trading at a much higher price. It just takes a little extra guts to hold your nose and dive in right now knowing the market may or may not be at the exact bottom.
With that as the backdrop, here's a closer look at three stocks that aren't just trading at a compelling discount, but are priced at absurdly cheap valuations.
Anyone who keeps their finger on the pulse of the cosmetics and beauty business probably knows it hasn't exactly been on fire of late. In October, Cover Girl parent Coty cautioned its shareholders that the entire industry's growth was slowing, and then reiterated that warning with February's second-quarter report.
Beauty retailer Ulta Beauty (NASDAQ: ULTA) has painted a similar picture, issuing full-year earnings guidance in March that came up short of analysts' consensus. Mid-single-digit revenue growth just doesn't excite investors. Indeed, this stock's not made any real net progress since 2022, reflecting the industry's recent lethargy. Inflation and the prospective fallout from fresh tariffs haven't helped either, of course.
As the old adage goes though, the punishment doesn't fit the crime. While the company certainly needs to address industrywide headwinds as well as its own unique challenges, it's not as if Ulta's not responding to its new challenges.
Case in point: Later this year it's opening up its online shopping platform to third-party sellers. Although this will indirectly connect some of the company's competitors with its own prospective customers, the business is increasingly moving online anyway.
Data from digital content agency Greenpark, in fact, indicates that 4 out of 5 consumers make an online purchase of a beauty product after a related online search, while projections from eMarketer suggest the e-commerce sliver of the beauty industry is going to easily outgrow the brick-and-mortar portion by improving at an annualized pace of 8.5% though 2028.
In light of the trend, Ulta is better served by serving as a more major online middleman rather than continuing to operate in a closed silo.
And for what it's worth, the worst of the industrywide headwind may be in the rearview mirror. Goldman Sachs recently upgraded Ulta Beauty's stock to a buy, citing a handful of new growth initiatives, and adding, "We note tariff risk is low for Ulta, while the stock has seen pressure but proved resilient during recessionary periods."
You'd be plugging into this stock at about 15 times this year's expected per-share earnings of $22.93, by the way, which is about as cheap as it's been in years.
The AES Corporation (NYSE: AES) isn't exactly a household name, but there's a good chance your household is a regular user of its service. See, this outfit is an energy wholesaler, meaning it provides power to utility companies that either can't or don't want to produce all of their own electricity for their customers. AES did roughly $12.3 billion worth of global business last year.
So why is this seemingly safe stock down more than 60% from its late-2022 peak and still knocking on the door of yet another multiyear low? It's kind of complicated. Here's the simplest explanation.
The utility industry is changing. Driven by a combination of improving cost-effectiveness, mandates, and mere preference, utility companies are moving away from the use of fossil fuels and toward cleaner alternative energy production. AES is no exception to this shift. It's selling or converting coal-fired power plants here and abroad, while investing in solar and wind.
The only problem? The company began this somewhat expensive reshaping at an incredibly unlucky time. Not only are interest rates suddenly at multiyear highs, but economic weakness can readily crimp demand for environmentally friendly electricity when lower-cost legacy options are still on the table.
Given the current economic backdrop, The AES Corporation's now sitting on more than $25 billion in long-term debt.
The thing is, this green-energy movement may be too big for mere economic lethargy to stop it now. This company maintains that it's going to produce top-line growth of between 7% and 9% at least through 2027, but in light of the continued proliferation of power-hungry data centers that will use electricity from nearly any source at almost any price, AES may be able to top its own growth expectations for far longer than it's currently projecting.
The stock's bargain-priced at only about 5 times this year's expected earnings of $2.11 per share, but its forward-looking dividend yield of 6.9% is just as compelling.
Finally, add cruise line operator Carnival Corp. (NYSE: CCL) to your list of dirt-cheap stocks to buy while it's trading at less than 10 times this fiscal year's per-share earnings estimate of $1.85.
This ticker's 40% pullback from its February peak makes enough superficial sense. Just when it looked like the company -- along with the entire industry -- was ready to shake off the last of its COVID-19 funk, tariff-driven worries surfaced. JPMorgan Chase CEO Jamie Dimon now argues that a recession is more likely than not to materialize, which of course threatens consumers' discretionary spending.
Except, perhaps Carnival isn't nearly as vulnerable here as it seems it should be.
The fact is, while consumers might postpone the purchase of a new car or cut back their clothing budget, travel and experiences is one area where people are likely to continue spending -- or even splurging.
As March's consumer confidence report from the Conference Board points out, despite quickly deteriorating economic sentiment that's coinciding with less spending on entertainment like movies and sporting events, "more planned to spend on outdoor activities and travel." The update adds, "Vacation plans also increased."
It's a testament to the resiliency of the travel business, and the incredibly cost-effective option that Carnival offers.
The analyst community remains optimistic, anyway. Despite the fresh economic uncertainty and its subsequent turbulence, the vast majority of these professionals still rate this beaten-down ticker as a strong buy. Their consensus 12-month price target of $28.09 for Carnival is also nearly 60% above the stock's present price, which isn't a bad way to start out a new long-term trade.
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JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, JPMorgan Chase, and Ulta Beauty. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now was originally published by The Motley Fool
