Market sell-off: 3 stocks at their cheapest valuations in years
It’s official: The S&P500 is in a bear market – defined as a decline of 20% or more in the index. Since 1950, there have been 11 bear markets in the S&P 500, lasting about a year on average from start to finish.
Liquidations can present great opportunities for investors to buy struggling companies at bargain prices. Here are three stocks that are trading near their lowest valuations in five years or more.
1. PayPal has never been so cheap
PayPal (PYPL -6.07%) operates an extensive payments network connecting 392 million consumers to 34 million merchants worldwide.
In two years, its total volume of payments increased by 30% per year and exceeded 1,000 billion dollars for the first time. Investors were enthusiastic and had high expectations, valuing the stock between 50 and 75 times earnings as measured by price-to-earnings (P/E) ratio for much of last year.
Things took a negative turn when management lowered its earnings forecast for this year. Last year, the payments giant forecast revenue growth of 18%, then cut that estimate to between 15% and 17% in its February earnings call. It further reduced that estimate in April to between 11% and 13%.
Investors sold the stock in response, and its P/E ratio is 24.3, the lowest since PayPal re-entered the public markets in 2015.
Although PayPal may face short-term difficulties due to a potential economic slowdown, as evidenced by its forecast, its long-term growth is still solid and it is a stock I will be watching closely in the months to come. come.
2. Goldman Sachs hasn’t been this cheap since 2011
Investment banks were buzzing last year as mergers and acquisitions and initial public offerings (IPOs) soared, helping Goldman Sachs (GS -1.75%) recorded a record year with sales up 33% to $59 billion.
This year was a different story. Inflation took center stage and the Federal Reserve pledged to raise interest rates until it subsided. Rising interest rates create uncertainty for investors, leading to high volatility across all asset classes.
The uncertainty surrounding the economy is causing fewer companies to go public through IPOs until conditions improve. Renaissance Capital noted that IPO activity hit its lowest level in six years.
Goldman Sachs is heavily dependent on investment banking revenue despite its diversification efforts, and in the first quarter its investment banking revenue fell 38%, leading to a 27% decline in total revenue.
The stock sits at a P/E ratio of 5.6, its lowest level since 2011, when investment banks were still recovering from the Great Recession. With Goldman Sachs trading cheap, I’d like to see interest rates stabilize and trading activity pick up before buying the stock.
3. T. Rowe Price hasn’t been this cheap since 1990
T price. Rowe (TROW -3.62%) actively manages personal and corporate investments, which means that its portfolio managers and analysts select investments for clients. Active managers compete with passive investing, which aims to match the performance of a stock index. Passive investing options have exploded in popularity thanks to exchange-traded funds (ETFs) costing investors less.
The shift to passive funds appears to have made T. Rowe Price less attractive to investors – the stock trades at a P/E ratio of 8.6, its lowest multiple since 1990. T. Rowe Price faces the winds opposites of passive fund growth, but active managers aren’t going anywhere soon.
While passive investing has taken business away from active managers, T. Rowe Price has grown its assets under management at a compound annual rate of 12% over the past decade. Revenue and net profit increased at a compound annual rate of 10% and 14% respectively during this period.
Last year, T. Rowe Price bought Oak Hill Advisors for $4.2 billion in cash and stock, giving clients access to alternative investment markets while expanding its global reach.
The company has a strong balance sheet with over $2 billion in cash and has rewarded long-term investors by increasing its dividend for 36 consecutive years. T. Rowe Price faces headwinds from near-term market volatility, but looks like a good long-term buy at its current valuation.