Down More Than 20% From Their Highs, These 3 Value Stocks Are Too Cheap To Ignore

Friday the S&P 500 closed at less than 2% of its all-time high. Despite the cracks in the real economy, such as supply chain issues, inflation, and other risks, Wall Street continues to take an optimistic approach by focusing on the long-term potential of many companies to foreground. Even with the market’s excellent performance since the start of the year, several quality companies have seen their stocks underperform the benchmark.

We asked some of our contributors which stocks of value were too cheap to ignore. They identified three stocks that were each down at least 20% from their highs. This is what makes Stanley Black & Decker (NYSE: SWK), Taiwan Semiconductor (NYSE: TSM), and Royal Gold (NASDAQ: RGLD) all good shopping now.

Image source: Getty Images.

Not just a DIY tool company

Lee Samaha (Stanley Black & Decker): Investors sold the tools and the stock of equipment for several reasons. First, there is the fear that the company is suffering disproportionately from the rising commodity prices and supply chain difficulties that have plagued the industrial sector. Additionally, there is fear that the surge in DIY interest created by the pandemic will subside and make comparisons difficult for the company.

These fears may be justified. For example, the company incurred additional costs worth $ 1 billion due to tariffs, exchange rate fluctuations and rising raw material costs in 2018, 2019 and 2020. During this time, a home improvement retailer Lowes reported a 2.2% drop in comparable sales in the United States in the second quarter.

However, it is important not to get lost in the details of short term trading. After all, Stanley has plenty of growth prospects. Professional customers are returning strongly and Stanley’s acquisition of the outdoor products company MTD will increase revenues in an exciting growth category. Meanwhile, the company’s leadership in e-commerce has left it well positioned to profit from the pandemic and 18% of its tool sales now come from e-commerce.

Trading only 15 times 2020 earnings, the stock’s sell-off is a good buying opportunity for investors willing to turn a blind eye to any potential bad news in the next quarter.

Taiwan Semi is in a growth position for decades to come

Daniel Foelber (Taiwan Semiconductor): Big tech stocks like Amazon and Apple have helped propel the US stock market to new heights in 2021. Despite being the world’s largest semiconductor company, Taiwan Semi lags its rivals as the company grapples with slower growth associated with plans to increase spending.

The stock only rose 5% for the year, underperforming the majority of its competitors.

TSM chart

TSM data by YCharts

The stock is also down about 20% from its intraday high of over $ 142 per share set on February 16, 2021.

Still, despite the stock’s underperformance, Taiwan Semi appears to be excellent value. The company is the industry’s leading chip foundry, harnessing the world’s most advanced manufacturing process. Its well-established position in smartphones and advanced computing, and its role in the growing demand for chips in just about every industry, provides the backdrop for decades of growth.

Chinese supply chain issues and political risks have been two of the main headwinds that have plagued Taiwan Semi in recent months. But a single glance at the company’s performance shows that the company continues to do well. Taiwan Semi released its third quarter 2021 results on Thursday. Highlights included record quarterly revenue of $ 14.88 billion, diluted earnings per share of $ 1.08 per US ADR unit, a record high and a healthy operating margin of 41.2%. The company’s fourth-quarter forecast suggests revenue of $ 15.4 billion to $ 15.7 billion and an operating margin of around 40 percent. Based on its sales and profit figures, Taiwan Semi now appears to be excellent value.

Concerns to consider are the company’s plan to invest $ 100 billion over the next three years to increase its manufacturing capacity, as well as the aforementioned Chinese threats. The company is focused at all costs on maintaining its position as an industry leader, which could impact its bottom line in the years to come. Despite the risks, investors looking for mega-cap growth stock in today’s market would be hard-pressed to find a better value than Taiwan Semi.

This gold stock is a hidden gem

Scott Levine (Royal Gold): While many people like to show their love of gold by wearing sparkly bracelets and necklaces, investing in the yellow metal is a more nuanced situation. The best time to start (or add) a position is when the price of gold has fallen, as there is a strong correlation between movements in the price of gold and those in gold-linked stocks. This is the case with Royal Gold, which is currently trading around 23% below its 52-week high of $ 129.69 – an unsurprising drop given that the price of gold has fallen by around 6%. % since the same period last year.

Operating differently from mining companies, Royal Gold is a royalty and streaming company. Instead of digging the yellow stuff out of the ground, Royal Gold provides seed capital to mining companies to help finance the development of their assets. In return, Royal Gold obtains the right to purchase some of the metal produced at a reduced price or to receive a percentage of the mineral production from the mine.

Although the price of gold has rebounded up and down over the past three years, Royal Gold’s business model reduces the risk mining companies face when commodity prices fall. Over the past three years, for example, Royal Gold has seen steady increases not only in revenue, but also in earnings before interest, taxes, depreciation and amortization (EBITDA) as well as operating cash flow.

RGLD Revenue Graph (Yearly)

RGLD revenue data (annual) by YCharts.

The future of the company also appears to be paved with yellow bricks. In addition to the seven main assets in its portfolio, Royal Gold has 16 projects in the development phase and more than 50 properties in the appraisal phase.

It is only the fact that it is trading more than 20% below its 52 week high that makes it look like a bargain; the security is also traded at a discount in terms of the valuation of its operating cash flows. Currently, Royal Gold is changing hands at around 15.7 times operating cash flow, which is a notable reduction from its five-year average cash flow multiple of 21.5. It looks like, from several different angles, Royal Gold is an inexpensive way to add sparkle to investors’ portfolios.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Lee J. Murillo

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