3 cheap stocks to buy right now
SSince the official end of the Great Recession in 2009, growth stocks have been the engine of Wall Street. Historically low lending rates, massive government spending programs, and a compliant Federal Reserve providing an abundant pool of cheap capital have prompted fast-paced companies to hire, innovate, and acquire other firms.
Those dynamics are unlikely to change anytime soon, and chickens are coming home to roost in terms of soaring inflation. It has also been difficult to find cheap stocks in the current environment, with the S&P 500 price / earnings ratio of 28.9 at historically high levels.
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Although the benchmark has pulled back from its all-time high in recent days, many stocks remain at high valuations. But while it can be difficult to find good values today, it is not impossible.
History suggests that a market correction is coming, although no one can know for sure when it will occur. It may be that the pullback in the broad market index is a sign that it is coming now, or that it is just a pause before the market rises again.
Still, there are stocks that are not expensive to buy right now, and the next three stocks already have a discounted price. Better yet, if corrected, they will hold up well to investors.
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AGNC Investment and Annaly Capital Management
AGNC investment (NASDAQ: AGNC) and Annaly Capital management (NYSE: NLY) are two actions that can boost inflation now, survive a downturn, and reward shareholders along the way.
Both companies are Mortgage Real Estate Investment Trusts (REITs) with similar operations – they invest in mortgages and mortgage backed securities (MBS) rather than properties. They don’t create mortgages, but instead buy and sell government-guaranteed mortgages from Fannie Mae, Freddie Mac and Ginnie Mae, called agency mortgages (hence the name AGNC Investment).
These two mREITs keep a close watch on interest rate fluctuations, as they use the current low interest rates to borrow money in order to purchase assets (mostly MBS) that will produce high margin returns at the end of the day. ‘to come up. Net interest spread and net spreads are the difference between the interest rate they earn on their assets and the rate they pay on loans.
AGNC’s net interest spread was 2.19% in the third quarter, an improvement from 2.09% achieved in the previous quarter and 1.94% a year ago. Annaly’s was 1.97%, down from 1.62% sequentially, although down from 2.03% achieved last year.
Another important metric to watch out for is their APR, or constant prepayment rate, which indicates the percentage of the portfolio the company expects to pay back within a year. Less is better, because a repaid loan does not earn interest for its holder, which can lead to lower rates of return. AGNC and Annaly are also doing well: the long-term APR of the first for the projected life of its portfolio fell to 10.7% from 11.6% in the second quarter, while that of the second was 12. , 7%, against 12.9%.
The real benefit of investing in these stocks is that they really have no credit risk, as the vast majority of their portfolios are backed by the full confidence and credit of the government. Some 70% of AGNC’s portfolio is made up of agency mortgages, while Annaly owns 99% of its portfolio in alphabet soup from government lenders.
Both stocks are also inexpensive. AGNC is targeting 6 times the earned and estimated profit and less than its book value, as its stock has fallen 15% from its 52-week high. Annaly is only targeting four times rolling earnings, eight times next year’s estimate, and is also at a discount to book value.
Each pays a dividend that currently pays around 10% per year, and both have a long history of paying shareholders who have posted double-digit returns on average.
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Telecom giant AT&T (NYSE: T) is another high-yielding dividend-payer (his current yield is almost 9% per annum) that has seen his shares fall by 28% despite the long-term potential of his business.
The reason for the updated valuation is AT & T’s decision to part with its WarnerMedia properties before merging them with Discovery (NASDAQ: DISCA)(NASDAQ: DISC) to create a new publicly traded media company. It will then halve the amount of free cash flow it devotes to its dividend.
Because investors will own the lion’s share of the new company, or around 71% of the total shares, they will benefit from its streaming services HBOMax and Discovery + in competition with Disney (NYSE: DIS) and Netflix (NASDAQ: NFLX).
Additionally, AT&T will be able to repay some of the substantial debt it has acquired over the years through a number of ill-advised acquisitions, as the spin-off will bring in some $ 43 billion in cash to telecommunications. .
AT&T will then be able to concentrate on its wireless and broadband activities. It has already started preparing for the split by acquiring significant 5G mid-band spectrum assets earlier this year. Telecoms are also continuing to roll out their 5G-C and fiber optic network access to increasingly larger parts of the country.
After the spin-off, Wall Street is hoping its income will grow steadily, eventually reaching current levels by the middle of the decade, when its dividend is also expected to exceed its current payout.
While the immediate effect of the dividend cut is disheartening for some income investors who bought it because of its dividend aristocrat status, they will still own top-notch entertainment assets (which could potentially pay dividends. full dividends).
Many blame AT&T’s acquisition of TimeWarner for the difficult telecommunications situation, which led it to decide on the spin-off, so that alone could allow its valuation to recover. Along with a more focused approach to the future, AT&T is now a cheap stock that should continue to do well for investors in the future.
10 stocks we prefer over AGNC Investment Corp.
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Rich Duprey owns shares of AT&T. The Motley Fool owns shares and recommends Netflix and Walt Disney. The Motley Fool recommends Discovery (parts C). The Motley Fool has a disclosure policy.
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