Equity markets tend to behave irrationally sometimes. And that can make it easier — or sometimes harder — to find stocks trading at a discount. And I have two strategies to talk about today that can help you find the winners.
Right now, for example, the U.S. employment rate is rising but the other hand, cost inflation is at its highest levels in the last 41 years. The Federal Reserve is therefore compelled to try to bring inflation under control. However, the action is likely to push the economy into recession. Investors are scared and pulling back.
First, investing in blue chip companies with strong fundamentals would be a wise investment decision here. Large-cap value stock can provide some stability during turbulent times. I have selected four large-cap value stocks trading at a discount based on their forward price-earnings multiple.
Second, investors could look at growth stocks with promising stories, as they tend to react more with respect to the market. Therefore, corrections are overdone, so some of these stocks can be a golden opportunity long-term. I have compiled a list of three such stocks.
Exxon Mobil (NYSE:XOM) stock has gained 46% year to date, far better than the S&P 500’s 20% decline over the same period. The company has been gaining on the back of rising oil prices.
Crude oil price spiked to over $120. Further, the Russia-Ukraine war and rising oil demand with a normalizing economy created ample opportunities for the company to grow. In the last 12 months, XOM generated $53.7 billion in cash flow from operations, which is huge. As a result, the company pared down its debt and enhanced shareholder’s value through stock repurchases worth $30 billion through 2023.
However, oil prices are declining now, which is not good news for the company. Given its break-even price of $41, there’s enough room for the company to still deliver solid results. For Q2 2022, Exxon is expected to post earnings of $3.89 per share, indicating a change of 254% year-over-year.
The company has been sharing its success with shareholders through regular dividend payments for last 100 years. During the period, it has increased its annual dividend payment for 39 consecutive years.
Walmart (WMT)
Walmart sign on front of Walmart store at sundown
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Walmart (NYSE:WMT) enjoys its dominant position as a massive retailer in the United States and across the world.
The company has grown consistently at a rate of 3.4% over the last five years, clocking revenues of over $500 billion annually.
Its large scale of operations and strong distribution capabilities gives it a bargaining power over suppliers. As a result, even during a period of high inflation, WMT is able to offer its products at a discounted rate compared to competitors.
In Q1 2022, its top line surpassed consensus estimates to record revenues of $140.3 billion. Going forward, consensus estimates for topline in Q2 2022 is $148.3 billion, reflecting an year-over-year growth of 5.4%.
The company has a history of paying and raising its dividends over the last 49 years. It has repurchased 19% of its outstanding shares over the past decade.
Ford (F)
Ford logo badge on grill of car
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Ford (NYSE:F) has been a victim of shareholder’s negative sentiments since the first half of 2022. A 40% year-to-date price correction of this legacy carmaker seems overdone.
The stock is currently trading at a forward non-GAAP P/E multiple of 6.7x, which is significantly below the peer group average of 11.9x. A subdued growth in sales of company’s core, gasoline powered vehicles and big recalls of its EVs in the recent months have been the primary reason for this discounted valuation.
Its lower price and future growth prospects make it an attractive investment bet.
In June 2022, the company reported to increase its U.S. market share to 12.9% . While the industry’s auto sales were down 11% in the U.S. due to supply constraints, Ford managed to post sales growth of 31.5% led by the strength in F-Series, Explorer and new Expedition and Navigator SUVs.
The company’s F-150 lighting was the bestselling electric truck during the month, and electric vehicles grew 77% year-over-year during the month.
Management aims to deliver 600,000 EVs annually by the end of 2023. This number should increase to over 2 million units every year by the end of 2026.
Intel Corporation (INTC)
The Intel logo in blue on a black screen.
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Intel Corporation (NASDAQ:INTC) is the world’s largest chipmaker and is known for its superior computer chip architecture. The company commands a 63.5% share of the central processing unit (CPU) industry.
At its current price, it is trading at a forward P/E multiple of 11.6x, reflecting huge discount compared to its peer group average of 17.7x. Given, the company’s strong fundamentals and growth plans, I expect positive returns in the future.
Most recently, INTC launched its new graphic processing unit (GPU), Arc A380, in the Chinese markets. If the product faces any hiccups, it can be fixed before its launch in the U.S. markets.
The company is also ramping up its production facility outside Columbus, Ohio, in an effort to expand geographically. However, it is pending regulatory approvals.
INTC has been distributing shareholder’s value through regular dividend payments. The company has a history of paying dividends over the last 29 years. It has a solid dividend yield of 3.6% versus industry average of 1.5%
Rivian Automotive (RIVN)
rivn stock sign outside the company's HQ in Silicon Valley
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Rivian Automotive (NASDAQ:RIVN) is currently trading near the lower end of its 52-week range of $19.25-$179.47. The stock is down 69% year-to-date mostly due to worse-than-expected results over the last few quarters.
Supply chain constraints and higher input costs have also put the company under pressure.
As a result, management had to lower down Rivian’s full-year production targets for 2022 from 50,000 units to 25,000 units. Reflecting this, investors have been shying away from the stock. In fact, one of its largest shareholders, Ford dumped around 15 million shares of the company, adding to the negative sentiment.
However, I believe, the stock price correction is overdone. The company is showing significant signs of improvement. In July 2022, the company produced 4,401 vehicles and delivered 4,467 units in the Q2 2022 (four times higher than the last quarter), exceeding analysts’ expectations. Order back log remains strong, with a pre-order book of 90,000 units between R1T and R1S vehicles.
Rivian is taking corrective measures to curtail costs and ramp up production. Management plans to lay off 229 workers from its non-manufacturing unit.
It is also slated to launch a lower-priced SUV R2 and open a new manufacturing facility in Georgia utilizing its available cash of $17 billion.
Roblox Corporation (RBLX)
Roblox sign logo at headquarters
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Roblox (NYSE:RBLX) shares have also been losing their value as its primary consumers, teenagers, are returning to school and indulging in other activities thanks to a normalizing economy.
The supernormal growth enjoyed by the company during the pandemic could not be sustained. Between 2019 to 2021, revenue soared from $508.4 million to $1.9 billion, reflecting a compounded annual growth rate of 94%.
Although the growth has declined from its previous levels, revenues are still expected to rise in the range of 14% next year. This is decent, given an already higher base number.
I believe the negative sentiment in the stock is far too stretched. Year-to-date, the shares of this online gaming platform are down 62%.
The top line increased 39% to $537.1 million in Q1 2022. I also like the fact that Roblox reported free cash flow of $104.6 million for the quarter.
While daily average users have declined in the U.S. and Canadian (-2%), growth is steady in Europe (+20%) and high in APAC region (+94%). Management expects the Asia Pacific region to be the key growth driver in the future.
XPeng (XPEV)
The Logo of Chinese electric vehicle manufacturer Xpeng (Guangzhou Xiaopeng Motors, also known as XMotors.ai) on tablet. XPEV stock.
Source: Koshiro K / Shutterstock
XPeng (NYSE:XPEV) stock is rebounding since June 2022, after a deep correction, led by a policy support in favor of EV makers in China.
On July 1, 2022, the company reported encouraging vehicle delivery report. In the second quarter, the company delivered an impressive 34,422 vehicles, exceeded estimates and representing a growth of 98% year-over-year. This is also the highest number of deliveries among emerging automakers in China for the fourth consecutive quarter, according to the company.
The company plans to accept preorders for its new G9 SUV in September. It also plans to release its new City Navigation Guided Pilot after obtaining relevant approvals. The new launches should further propel deliveries.
XPeng Chairman and CEO He Xiaopeng said the company aims to have a flying car in mass production by 2024. XPEV is expected to price the vehicle under 1 million yuan ($157,000), making to affordable so that it can be easily accessed by masses.
For Q2 2022, revenues are expected to be in the range of 6.8 billion yuan to 7.5 billion yuan, reflecting growth of ranging between 81% and 99%.
Given, XPeng’s growth presence in the international markets, especially Europe, its growth should remain robust.
On the date of publication, Sakshi Agarwalla 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.
