5 Stocks With a P/E Under 10!

Many sections of the market are extremely highly valued today, but that doesn't mean that there aren't some pockets of phenomenal value for investors. So, I wanted to get into John Quas wheelhouse. That is companies that are trading for extremely low price earnings multiples. These are all companies with pees under 10 right now. A lot of stocks are over 50. So, John, what is the first one you want to go through? We're going to have five of these here today. I want to take just a quick second to tell you about Molly Fool's epic services. has got everything you need to build a powerhouse portfolio minus the Wall Street stiffness. Premium stock picks, elite research tools, and battle tested strategies. If you want access to montly epic, go to full.com/epic-50. That's fool.com/epic-50. Well, the first thing I want to do is to set the table here and to point out that a low valuation, which isn't bad, but it doesn't always mean a good investment opportunity. That's going to depend on if the business performs over the long term. And all of these stocks, they're they're cheap because there is an asterisk that we want to put on it because there are legitimate concerns. That said, these are some cheap stocks that we do want to look at. And one of them, the first one, uh, is Academy Sports and Outdoors. And that is ticker symbol ASO. This is a lot like Dick Sporting Goods if you're familiar with Dicks, but it's actually even a little bit bigger retail footprint than a Dick store. So about 70,000 square ft average for an academy sports and only around 50,000 ft² average for a Dix. Now my personal view on this is this can either be a really good asset or a liability. If you don't have the sales to support this kind of a footprint, a size, then this is actually kind of a liability. But if you do have the sales to support it, you can gain incredible operating leverage by just having this one big massive store as opposed to little tiny stores that you're trying to maintain. Dix is moving towards smaller scale by acquiring Foot Locker. These are small locations. We're moving smaller. I think it's going the wrong direction. Academy Sports, these huge locations that do have sales volume right now to support good operating profits. The I the hope is that sales continue to grow and it gains even more operating leverage over time. >> What is the reason that the market's maybe a little bit skeptical? Is it just specifically Dicks? Is it that there's I mean like around here we have Shields, right? It's it's essentially the same thing as Dicks. Uh you know, a little bit maybe more hunting oriented, but it does have kind of a regional loyalty. You know, the there are two near me that are very similar in size, very similar in what they're actually carrying. I would say the DIX is actually nicer. It is definitely not busy busier. So what what is it that the market is kind of skeptical of? Is it that there's there's no easy thing to hang on whether it's regional or better prices or or what are you thinking about that? >> Well, there is like an industry concern that is waning but has been present for much of the last year and that is just the geopolitical tariff uncertainty. all these companies that are bringing in products from overseas, it's just really hard to calculate the cost. That's been hitting the whole sector and of course that is now waning. But the bigger issue here is that Academy Sports puts out long-term financial goals and it has some really great long-term financial goals. However, they have been revised down in within the last 6 months or so. And so what this is indicating is while we can look at these long-term goals and say, "Wow, this actually looks like a really good opportunity, it's already been revised down once." And so you start to say, "Well, maybe the opportunity isn't quite what management thought. Why is management right now?" Uh, however, if management is right, so this is what it's targeting. It has about 320 stores, so it wants to open up at least 125 more in the next few years. That's over 40% growth. Um, it wants it hit 8 billion in annual sales. That's about 30% growth. And then it wants a 7% net profit margin. A little bit higher than today, but that would equate to roughly 50% earnings growth. So you somewhere in the gambit of 30% to 50% business growth here. Maybe only trading at eight times earnings right now. Maybe it's worth 10 times earning. There's another 25%. You you can easily see how this stock could double over the next 3 to 5 years if it just hits what management is saying. But is the opportunity what management thinks? The other thing to highlight is retail is just naturally a very high lever business. So if you you have fixed costs, you know, have the the building, the people who are working there, and then if you don't hit your sales goals, that's going to hit your bottom line much harder than it is your top line. So, you know, a 10% drop in sales or, you know, underperforming your your expectations by 10% can mean your earnings drop 50%. So, just another thing to keep in mind. Same thing goes for things like restaurants, but uh you know, interesting opportunity at at the right price. All right, the first one I wanted to talk about today is AirCap. This is a company you have probably flown on an aircraft that they own without even knowing it. They just simply buy aircraft and then rent them out to the airlines that we're flying on all the time. Uh price to earnings multiple for aircraft air cap is just 6.4 right now. They're signing contracts with airlines that are long-term and they're only taking out debt, which that that's the other thing here. They have about $40 billion worth of net debt on the balance sheet, but they only take out that debt when they have an actual deal and an aircraft that they can actually sell. So I think this is a much lower risk business. You know, it is essentially just a financing business. Uh but it's I think it's much lower risk than investors are currently giving it credit credit for. So at a pretty reasonable price to earnings multiple, I think the riskreward here is pretty solid. And what's so interesting here is if you're an airline, how hard is it to run an airline from just projecting your cost? You look at United Airlines coming out recently as far as passengers go and flights and everything that was fine, but the fuel costs an added $6 billion charge to what it was working with here. And so that's so unpredictable at times. Whereas if you're air cap really a very predictable business and that is something that you you really want when you're looking at a value a value stock such as this, can I project where the business is going? You can to a greater degree. They've also been really opportunistic in selling aircraft when they're highly valued and buying them when they're low lowly valued. I mean, this is one of those little tricks of the trade. That's why the stock is up about 200% in the past 5 years. So, interesting one if you're looking at, you know, kind of the financial field and the tailwinds that we have in airlines today. All right. Why are you seeing an opportunity in McCormick? >> McCormick and company. This is a very interesting company. You've probably, if you've ever used a seasoning or a spice from the grocery store, chances are this company owns it, whether under its own label or under a different label. The the thing that is attractive here, the what it's known for is its dividend. This is a company that has increased its dividend for 40 consecutive years, landing it in very elite territory. And I think that the paying the dividend is over a 100red years if I'm not mistaken. So this uh one of the things that's so interesting here is that it is down over 50% right now. That has actually never happened. It is trading at under 10 times earnings. That is highly unusual. This is normally trading for two to three times this. And also if you look at it uh the dividend yield right now. So I mentioned that dividend. up close to a 4% dividend yield right now which that is actually at a record high. So very very unusual but again something is driving down the stock price that is giving us this deal. >> Yeah let's talk about that. I mean the the massive deal is buying unilver's uh global food business. This kind of takes it from uh oh you know McCormack is sitting there in the in the spice area and they kind of own that area to moving into all kinds of other areas. It also brings a little bit of leverage in Unilver shareholders are actually going to own a majority of this new company. So this is pretty transformational. >> It is it makes the entire computation of the value very messy in the sense that you are adding the debt. there is now more shares because you have the unilver shareholders owning certain amount and it's hard to parse it all out. So it is complicated. I understand that and I think it is a riskier business right now. I I don't know if the food business as a whole is as attractive to what McCormack has built in the seasonings and spices. I think that that's a little bit more more niche area to be in. So, I do like that. So, that is why it is down. That is the risk here. Investors are saying we don't really like this. Here's what I'm thinking as far as the value investment goes. I think a worst case scenario is that this kind of just goes sideways. It's just not going to create a ton of value. Um, but it's not necessarily going to lose you money. That's hard for me to get my head around that this is actually going to be a value destroyer and that it's the stock's just going to go down 10% a year from here. I don't see that. I think the risk is you underperform. The kind of base case is you get a very nice dividend locked in at a nice yield. Uh but the upside is that McCormick's management that has proved itself over the long term actually knows what it's talking about here and this is a value creation event and it is going to be rewarded nicely from here. >> Yeah. One of the things to think about here too is I think there's been a lot of value destruction in a lot of the companies that are serving grocery stores in particular. You can think about a company like General Mills or Kellogg. Those have not performed well versus the market. And a big dynamic of that is it's much easier to create a small brand, advertise on Instagram or Facebook, reach customers directly. Spices, I think, may be a little bit different in even some of the some of the products that Unilver is bringing to the market here. Uh maybe in a little bit different category. So, I don't know if that insulates them just a little bit. The kind of things that you're not buying on a regular basis, maybe aren't going to have that subscription. You're just going to go to the grocery store and you know what? I need some I need some cinnamon sticks and I'm just going to buy whatever is there that happens to be McCormick's product. So, that is the dynamic that I'm going to be watching between the two because it makes sense that they're going to have a little bit more pricing power over their customers, but are those customers going to be leaving because there's more options in a grocery store or buying online today than there was, you know, 10 or 20 years ago? So, we'll see how this one plays out. Another one there is plenty of questions about is Comcast. Comcast is one of these stocks that I have thought it was incredibly highly valued for the way that the business was headed for a very long time. But over the past 5 years, shares are down almost 60%. They're only trading for about seven times forward earnings estimates. Now, all of this said, there is almost a hundred billion dollar worth of debt on the balance sheet and they are in the process of splitting in two. So, a lot of moving pieces here, but one of the things that I like here is this the split into two companies. And there is, you know, a family dynamic with the Roberts family, you know, controlling Comcast that we know today and then also being involved in both of the companies, uh, that will be potentially split off in the future. And we'll see how that exactly plays out. I wouldn't be surprised if the NBC Universal side is acquired by someone like Netflix, for example. Uh, but there's there's just a lot of complications. But when you do these splits, and we saw this with General Electric, I think we're seeing it now with Honeywell, you can actually get more value out of those companies because they're more focused companies. If you think about Comcast today, how does Peacock fit with the parks fit with getting cable internet at your house? Like it it it all doesn't really fit together. And so I think separating into two businesses and being one being you know the content and the parks that sort of you become a mini Disney and then the other piece is just going to be connecting people to cable to broadband that's just a cash flow business. I think that makes a lot more sense to be separate strategically. So you're having that combined company today you you rerate those. I think that could they could be better performing businesses and potentially more highly valued businesses as separate entities. Travis, I can't deny that this looks like a phenomenal value stock. Every single time I look at it, I I can't just get over the fact that it is so cheap on a multiple basis. I just don't like it as a customer. And so that's been my biggest thing. >> Totally true. Totally true. Yeah. And and the other piece too is they have been losing customers in kind of the wrong places. You would think that they would be growing, you know, in broadband. Uh that has not been the case. You know, I know we used to be Comcast customers. I now have two fiber lines in my yard for for some reason. So we we have fiber and we pay less than we did uh when we were paying Comcast for just you know cable internet and it's faster. So there's a lot of competitive threats there but I think there is a lot of stickiness to the business once you have that physical infrastructure in the ground. It is ultimately valuable and I think the content side of the business there there is value there. Where exactly does that end up? I think could be really messy. But you look at the the valuation that uh Warner Brothers Discovery got, they got about the same valuation as the equity value in Comcast today. So, you know, I think that these are probably better assets. They also have, you know, the streaming service as well. though. And and the parks, let's not let's not lose sight of the fact that that's a business that generates $10 billion worth of revenue and is continuing to grow. It's not Disney. I I was down there in Florida earlier this year. You can just tell they they don't have the same cohesive, you know, business. They don't have the same pricing power as Disney does. There there's not the same ecosystem, but that's Disney's been being built for, you know, 70 years. Uh so give them a little bit of time. I think that's a really good asset and pulling things like Nintendo in uh and Mario in I think is is an option that they have that Disney just simply doesn't. All right, let's round it out here with a stock that I think we both like. That's Lyft. Lyft. Absolutely. And in my screen, this was actually the cheapest stock of its size trading at just two times earnings. Now, we did talk about that. There is a little bit of funniness with the numbers there. I mean this is an accounting figure. So there are some things that mess up the accounting but still even when you look at a cash flow basis this stock is trading in the single digits below 10. So >> yeah let's I'll give you the numbers. The forward priced earnings multiple if you want to use those kind of take out these onetime things. Forward price earnings multiple is nine. Forward price to free cash flow is five. So no matter how you look at it is a pretty good value. >> It absolutely is and it's as far as I'm concerned still growing in the right places. You look at the rides, the riders, the drivers, every part of the business that you want to see growing. When you think about a two-sided marketplace like this, it's growing. And then there's the optionality that comes with that. As a platform, adoption increases. That's another opportunity to go into advertising. That is something that they have been working on. I think it has room to grow even more from here. So, I think the business is very, very healthy right now. And in fact, I think that investors would be in love with Lyft if it wasn't for the existential long-term threat that is perceived at the very least and that is autonomous vehicles. Do we need somebody driving me in a car somewhere else in the future? Yeah, that is the biggest question and you both Lyft and Uber are kind of facing this right now. Lyft is obviously the second place player. So, it makes sense that they have a lower valuation than Uber does. The other thing is that I just to add to complications I I think they have both Uber andyft have a good strategy in autonomy which is basically just hey there's not going to be one autonomous vehicle supplier there's going to be a dozen. So where you actually want to be is in that aggregator position. Basically think about it like the app that people choose to interact with. You know it's probably not the case that a dozen auto manufacturers are going to have their own app like Tesla is trying to do. Uh, so you know, Uber and Lift still has have a place, but the other thing that I think complicates things a little bit is you do have a positive free cash flow business. They're, you know, periodically buying back some stock, but then they made a bunch of acquisitions. I mean, they recently announced that they were buying Surveo's bike share unit in Spain. So, they've expanded into Europe with free now. Uh, they bought kind of this high-end chauffeur business. So, it is getting to be a little bit muckier of a business as they put some of that cash to work. I think the idea a little bit like Uber is to say, "Hey, the more touch points we have with customers, the better, but it does add questions about whether those are going to be positive ROI deals." >> Yeah. And I think to your point, Travis, I agree with that wholeheartedly. I think that that risk is dialed up higher if the valuation is higher. If you're throwing cash at things and you don't necessarily have a ton of cash relative to where your stock is trading, that to me is a riskier proposition, too. Hey, we're trading at five times earnings. We've got a ton of money to do something with. And so, even if some of these acquisition targets aren't the best ideas and they don't work out, um, we we haven't really been set back all that much. But to the flip side, there there is some upside opportunity here as Lyft does seek to become particularly more competitive in international markets. >> Yeah. And the other option is they could just buy back their own stock at this current price. Uh that worked out well for GM a couple of years ago. But uh that is what they are choosing to do. So we'll see if it works out long term. But there's some value stocks that are at least worth putting on your watch list. Academy Sports and Outdoors, AirCap, McCormick, Comcast, and Lyft. Let us know which one intrigues you the most. Leave those comments in the comment section below. Don't forget to subscribe here on YouTube to the Mley Fools channel. Thanks for watching everybody. See you here next time.