3 Cheap Stocks Investors Should Buy Right Now
There are many cheap stocks in today’s bear market, but some of them deserve it. However, a handful have been dragged down by general sentiment, and investors should definitely buy these stocks.
Three is cheap in my opinion, but still valuable at the moment alphabet (WELL 4.41%) (GOOGL 4.16%), MercadoLibre (MELI 8.12%)and upstart (UPST 8.04%). While they face short-term headwinds, I believe the business model will work well for both of them over the long term. Here’s why.
While Alphabet may be little known to noninvestors, the companies it owns are not. Under its umbrella are Google, YouTube and the Android operating system. While this may seem like a diversified company, 80% of its revenue comes from advertising sources.
That concentration is exactly why the stock is trading at about 20 times earnings, close to an all-time low and nearly 30% off its peak. Ad budgets are slashed during recessions, and Alphabet is in the crosshairs.
However, I think this idea is misguided. Take a look at Alphabet’s trailing-12-month revenue since 2005. It barely faltered during the 2020 COVID-related recession or the 2007-09 Great Recession.
Now I hear the criticism: “The COVID recession barely lasted a few months! This time it’s different!” While I agree, 2020 has seen little travel promotion and Alphabet has still managed to stay the course. While Alphabet could come under pressure across the board, it won’t let an entire segment evaporate.
Those concerns aside, Alphabet is a resilient company. It has nearly $134 billion on its cash and cash equivalents balance sheet, and its return on invested capital was 28% last quarter. Additionally, Alphabet has a $70 billion stock repurchase plan that’s being conducted at a historically low valuation, meaning management is getting more bang for its buck with its buyback program.
Alphabet is one of the most stable companies in the world and is an excellent buy to add growth and stability to your portfolio.
While e-commerce seems to have proven itself at other companies, MercadoLibre is just getting started. Based in Latin America, MercadoLibre provides all the necessary tools (like an online marketplace, digital payments, shipping logistics, and consumer credit) for e-commerce to thrive.
When someone says a company is “fire on all guns” they should point to MercadoLibre. In the first quarter, fintech revenue grew 113% year over year (YOY) to $971 million, while trading revenue grew 44% year over year to $1.3 billion. On a deeper level, MercadoLibre delivered 79% of packages within 48 hours of ordering, and its fintech adoption rate skyrocketed by 20% thanks to its credit department.
Despite this execution, the stock is trading at record lows.
In 2009, the global financial system was on the brink of collapse – yet you can buy MercadoLibre stock today for the same value as it was then.
The negative sentiment could stem from MercadoLibre’s shaky profitability (despite posting a 2.9% net income margin for the quarter). However, MercadoLibre is still relatively early in its growth phase, and investors should be excited about the growth that is yet to be grasped.
3. Upstart Holdings
Upstart’s stock has had a wild ride since its IPO in late 2020. It used to trade for more than $400, but today you can buy it for around $35. Such a dramatic drop usually points to a failing company or perhaps a management scandal. For Upstart, however, it was one factor: extreme valuation. At its peak, Upstart was trading for almost 45 times sales; Now it’s trading for just under three.
While some software companies trade this high, companies in the concession loan business don’t. Upstart’s model replaces the traditional FICO consumer credit score with the use of artificial intelligence (AI) to more accurately assess credit risk. The program works so well that lenders can approve the same loan amount while experiencing 75% fewer defaults.
So when Upstart takes over Fair Issac Co. and its FICO score, let’s compare it to its established competitor.
It’s not often that the challenger wins the incumbent’s business but trades at a lower valuation than its rival, but that’s exactly what’s happening here.
To top it off, Upstart’s first-quarter revenue rose 156% year over year, while the company reported an 11% profit margin. In addition to its initial personal loan offering, Upstart is also expanding into auto loans.
While there is a valid argument that fewer consumers will borrow for purchases, banks will want to streamline their lending practices while maintaining as much business as possible. What better way to do this than using Upstart’s solution, which has been proven to reduce risk while maintaining approval ratings?
If Upstart can do business during a recession, its business will boom when the economy recovers and consumers are confident enough to make big purchases.
While I don’t know when the market will recover, I am confident that these three companies will emerge stronger as they entered the bear market. I’m not sure if that’s in a year or three. But over the long term, I can think of few better places to invest right now.