With global markets appearing to be on the verge of a significant downturn, investors should prepare for this eventuality by targeting cheap stocks to buy. According Investopedia.comvalue-oriented investments refer to securities that trade at a lower price than the fundamentals imply. These factors include dividends, earnings or sales.
Cheap value stocks are a stark contrast to growth-oriented names. While the latter has seen substantial momentum in 2021, at the time, the Federal Reserve welcomed such sentiments. Now that the central bank has turned resolutely towards a hawkish monetary policy, growth names succumbed to massive pressure. While value games also suffered, overall it was to a lesser extent.
Exceptionally, the market decides, for whatever reason, to penalize some companies harshly compared to others. For contrarian investors, the red ink in the cheap value stocks below could represent a great opportunity given the circumstances.
As a Fortune 500 science and technology innovator, Danaher (NYSE:HRD) designs, manufactures and markets professional, medical, industrial and commercial products and services. Recently, the company drew attention to its coronavirus testing service. However, management warned earlier this year that demand for its diagnostics business would decline once Covid-19 becomes endemic.
Yet an Edward Jones analyst saw the circumstances differently, noting that “Covid-19 testing could become a regular or seasonal occurrence, much like flu tests are today. The expert might have a point here. However, Wall Street doesn’t see it that way. Year-to-date through the October 6 session, the DHR has fallen almost 12%.
While I understand some hesitation for Danaher, the downtrend might push things too far. According to Gurufocus.com, DHR represents a slightly undervalued investment. The company has decent strength in its balance sheet. However, it comes alive in the growth and profitability departments, with several key performance metrics at least 60% or better against industry rivals. Therefore, DHR is a strong candidate for buying cheap value stocks.
An American multinational biopharmaceutical company, Amgen (NASDAQ:AMGN) focuses on the discovery, development, manufacture and delivery innovative human therapy. To achieve this, Amgen relies on some of the most revolutionary tools in the industry, including advanced human genetics. Recently the company released encouraging data regarding one of its therapies targeting lung cancer.
Compared to other cheap stocks, Amgen is doing relatively well. Since the start of this year, AMGN has gained nearly 2%, which is way more than I can say on the major stock indexes. Still, it seems like a smooth performance, given the underlying relevances.
Indeed, Gurufocus.com describes AMGN as slightly undervalued. Amgen offers a range of strong income statement measures relative to the pharmaceutical industry. For example, its three-year revenue growth rate stands at 8.3%, which ranks better than nearly 58% of its peers. However, the most important highlights focus on the company’s profitability indicators. A notable statistic is its 25% net margin, rated higher than 92% of pharmaceutical competitors.
Thermo Fisher (TMO)
An American supplier of scientific instruments, reagents and consumables, as well as software services, ThermoFisher (NYSE:TMO) essentially represents the science industry machinist at large. While it might not be the star of the show, research and development couldn’t happen without Thermo Fisher’s product empire. Therefore, TMO should be considered a strong value play under all circumstances.
However, at this point, it is also one of the cheap value stocks to buy. In the price chart, TMO is down over 16% from its January open. Fortunately, the volatility has faded over the past few sessions. Yet, in the previous month, the TMO was down 2%. Wall Street might be acting irrationally here.
According to Gurufocus.com, Thermo Fisher’s business is slightly undervalued. The company has a decent balance sheet, with an Altman Z-Score of 4.06, reflecting limited bankruptcy risk. More importantly, it commands excellent measures of growth and profitability.
TMO’s three-year revenue growth rate is 18%, better than the competition’s over 63%. Additionally, its 17.4% net margin ranks above nearly 80% of the medical diagnostics and research industry.
Multinational industrial conglomerate and applied science firm, Honeywell (NASDAQ:HON) basically does everything. Honeywell integrates relevance across the entire business ecosystem, from the mundane (from pre-pandemic standards), like N95 masks, to the most innovative sectors, like aerospace. In the face of a possible recession, it can be useful to have a jack-of-all-trades investment.
Wall Street broadcasts different views like other cheap value stocks. Since the start of 2022, HON has fallen by more than 15%. Part of the challenge associated with conglomerates is that they spread vulnerabilities over a large area. Therefore, investors may have lost their temper with HON. Over time, however, former stakeholders may come to regret their decision.
According to Gurufocus.com, HON rates as slightly undervalued. Contrarian investors will appreciate its robust profitability indicators. For example, Honeywell has a return on equity of 28%, higher than 91% of its peers.
Moreover, he enjoys decent assets in the balance sheet. For example, its debt to EBITDA ratio is 2.3x, significantly lower than the 3.4x industry median.
One of my favorite ideas to discuss regarding cheap stocks, tax and accounting software provider Intuitive (NASDAQ:INTU) deserves your attention. My argument focuses primarily on the booming gig economy. Several projections show that the gross volume of this sector will increase significantly in the years to come. However, it is essential to realize that employees and gig workers (independent contractors) have different tax profiles.
You can research the differences on your own, but in short, gig worker taxes are much more complicated pound-for-pound than employee W2 returns. Therefore, Intuit represents a great fundamental value upstream and downstream (accounting and tax declarations). Unfortunately, Wall Street does not recognize this thesis, penalizing INTU with a YTD performance below parity of 35%.
His loss is your gain. According to Gurufocus.com, Intuit orders a slightly undervalued company. It’s one of the few cheap value stocks to buy that has overall strengths: a strong balance sheet, excellent growth metrics and solid profitability metrics.
For the riskiest part of cheap value stocks, we’ll visit a big-box retailer Target (NYSE:TGT). Frankly, I was hesitant to include this company in this list. In general, its rival, we will not name it, enjoys a “better” stock market performance, down 9% over the year. In contrast, the TGT haemorrhaged nearly 33% of its value over the same period.
Earlier this year, famed hedge fund manager Michael Burry targeted retailers like Target because of the whiplash effect. In short, retailers have overestimated the amount of consumer demand that will exist in the post-pandemic new normal.
Many businesses today have a huge problem with excess inventory. While I don’t necessarily disagree, it’s fair to point out that Target benefits from daily acquisitions. Now people go to Target not only for discretionary purchases, but also for basic necessities like food.
Interestingly, Gurufocus.com labels TGT as significantly undervalued. Believe it or not, in longer-term frameworks, Target enjoys strong growth and profitability indicators relative to its industry.
If you’re a dice-roller, TGT might be an enticing idea among cheap stocks to buy.
Mathematically speaking, financial services provider Visa (NYSE:V) represents one of the cheap value stocks. Should I buy it anyway? This is where the narrative gets tricky. As Americans face a possible recession with near-record levels of credit card debt, you imagine that the first thing they will do is try to free themselves from said responsibility. From this angle, the V stock appears to be attempting a bearish trajectory.
In the market, Visa shares have fallen more than 16% since the start of the year, so it is understandable that investors are worried. On the other hand, financial credit allows some households to stretch their budget to make ends meet. It’s a cynical view, of course, but it happens. And that should theoretically support Visa’s business.
Now let’s move on to math; Gurufocus.com considers the V stock to be significantly undervalued. Buying Visa stock is tempting because it just looks too cheap relative to fundamentals. It has a favorable cash-to-debt ratio compared to industry standards. When it comes to growth and profitability metrics, Visa has excellent performance statistics.
Again, this is tricky, with the complexities arising from possible macro headwinds. Still, Visa stands on the ground convincingly if you’re a gamer.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.