Three valuable stocks for a volatile market
Value stocks can help preserve capital over the long term, especially in times of volatility, and if the company is producing relatively stable cash flow, stocks are trading at a discount to metrics such as value. accounting. But investors should be on the lookout for value traps. Value traps can occur if the company’s long-term fundamentals are poor and there is little chance of a turnaround, despite stocks trading below metrics such as cash and assets . Consider these three stocks if you’re looking for long-term investments that will eventually overcome the current market volatility.
Hewlett Packard has slowly begun to turn around its business, but the company still relies primarily on laptop computers to generate its revenue, and this segment continues to struggle as a global slowdown in computer sales continues to affect sales. In the last quarter, volume fell 23% for the segment, but overall revenue increased 4%, mainly due to higher sales in the desktop division, which in turn led to a total increase of 9% in the personal computing division. Meanwhile, the printing division continued to struggle with a 6.5% year-on-year decline.
While overall demand for the company remains weak, the stock continues to trade at a relatively cheap valuation, meaning investors could view the stock purely on the basis of cash flow. The combination of stable cash flow and a strong set of assets makes HP a classic value opportunity. Hewlett Packard is currently trading at a forward P/E of around 6.55x. It is also currently trading below book value, with book value per share at $33 and the stock trading at around $28. While office and printing businesses face headwinds, the divisions’ long-term business potential remains strong. Although HP’s business is under pressure, the cyclical nature of the personal computer industry is likely to see HP’s business turn positive once the global economy becomes more stable, making it valuable to those looking to hold the stock for the long term.
Dell is another IT company that is currently trading at multiples that can be considered quite cheap. Revenues continue to grow in the 5-6% range and the stock took a beating on news of a slowdown in the PC industry. Excessive debt is also affecting the company’s stock, with debt in the $28 billion range. The stock is currently down 26% from its 52-week high. Considering the shares are trading at such low valuations and the company is seeing high double-digit growth from the infrastructure solutions group, and a 17% increase from the client performance group, stock trades could see a significant increase as we go through the next two years.
The stock’s current P/E is 6x but the book value is currently -3.00 per share. Due to the high-margin nature of its corporate divisions, the company’s cash flow is at record highs. Dell’s book value is expected to improve significantly once high debt levels subside, and with a likely increase in cash flow as a result, the stock will become more attractive to investors. Finally, cash flow is also expected to experience significant increases due to the high margins of the company’s operations, which will only add to the company’s fortunes.
Seagate is another company that took a big dip in the recent correction. The stock is down more than 41%. The company is a major player in the hard drive industry and outperforms its main competitor Western Digital, while continuing to bring more competitive enterprise-class hardware to market. Management noted that supply chain disruptions have affected the business, but as the CEO said, “It’s all about the second half of the year,” he noted, pointing out the Seagate’s own efforts to manage its supply chain. “The back half will see the fruits of that effort – we’re really looking forward to it.”
The company’s forward P/E will be around 6x and book value per share is currently 80, making the price-to-book ratio below one, and despite talk of data centers in a bubble , Seagate was able to maintain a 14% profit margin, which can be considered healthy, regardless of the current headwinds. Additionally, the company continues to see strong cash flow with a dividend yield of 3.5% on a payout ratio of 34%, indicating that the dividend remains sustainable. While the data center business has come under scrutiny amid accusations that it is in a bubble, Seagate could benefit from long-term trends, especially as more and more more data centers are needed in developing markets. The stock continues to fly under the radar, but that could soon change as investors start to look at value over growth again.
Companies mentioned in this article
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