The Most Obvious Stock to Buy Right Now

The index can sit near record high while individual stocks experience private bare markets. That gap between the index and the average company is creating unusually interesting opportunities. But a falling share price does not automatically create a bargain. The market may be emotional or correctly discounting slower growth, higher rates, or a genuine business problem. So today I've looked at the S&P 500's performance over the last few weeks and taken seven companies across semiconductors, streaming payments travel restaurants, and retail and rank them from the weakest to the strongest opportunity at today's price. And for every company, I want three answers. Is the business improving? What expectations are embedded in the price? And does the potential return compensate us for the risk today? Now, by doing so, several look cheap against their own history. That's not enough. One is a wonderful business, but little margin of safety. Another looks defensive, yet its growth is weaker than the headline valuation suggests. And two, offer an attractive balance of cash generation, growth, and valuation. The win has fallen more than 50% this year, even while earnings continues moving sharply higher. Now, I'm going to touch on the price that I would actually personally pay because a great company and a great investment, they're not automatically the same thing. First, we need to understand why former winners are being punished. We're going to listen to the two forces in this clip. Yields and the breakdown in momentum beneath the index. All right. What's going to determine what happens this month? Yields check. Momentum check. That's why we come to you. 10 year highest since Jan 25. Momentum's lower. Chips are weaker. Momentum underperformed the S&P in August. S&P was up 2.6%. Momentum was only up 0.3. And I bring you this one stat before I let you go. I said it yesterday. Okay. The index momentum is on track for the biggest quarterly underperformance in 25 years. It's tumbled more than 9% since July 1st. And that distinction drives the ranking today. Momentum underperforming does not mean every former winner is broken. We need to separate a valuation reset from deterioration in the underlining business. Because look, retail investors have committed enormous amounts to popular growth trades. When positioning becomes crowded, even good results disappoint because the market expected perfection already. And a strong August and a weak September. They can coexist. Seasonality predicts no individual stock, but it changed the environment in which expensive expectations are tested. Where the second pressure is the discount rate, higher long-term yields reduce the present value of distant cash flows, especially for companies valued on profits that are many years away. And yields, they're not rising in isolation, inflation, government borrowing, and geopolitical risk that can keep the cost of capital elevated even without a recession. Which is why my ranking rewards visible cash generation today, not merely an exciting story about tomorrow. A lower multiple is useful only when the cash flow supporting that multiple is very durable. And we even have major bank strategists. They've become less bullish. Doesn't dictate our conclusion, but it strengthens the case for demanding better entry prices. And an oil shock can squeeze consumers, pressure margins, and sustain inflation. The seven companies have very different exposure to that ultimate risk. So with that framework established, we can begin at number seven. Perhaps the highest quality business in the entire group, but also the one where the current price, it leaves me the least room for error. And at number seven, we have ASML. This is not a lowquality company placed at the bottom of a ranking. It's a near monopoly placed at the bottom because valuation and business quality, they're two different questions. Also worth highlighting, they're up 56% year to date, trading at the upper end of the 52-W week range. All-time high sitting just shy of $2,000, where we get a strong buy from Wall Street, weak buy from Seek Alpha. And as a reminder, ASML produces the EUV extreme ultraviolet lithography systems required to manufacture the most advanced semiconductors. The price per EUV machine that's risen dramatically over time, reaching roughly €284 million euros in just the latest year. And while pricing power that's supported by economics few companies can match, the return on invested capital is reached 47% evidence that ASML converts his technological advantage into exceptional returns on capital. But the current growth picture little bit more complicated. Year-over-year revenue that's below 10% yet we can see forward revenue expectations around 29 with forward EBIT art that's sitting very high around 41%. The problem is that investors already understand the quality. The forward enterprise value to free cash flow chart. We can see that ASML based on this still commands a substantial cash flow multiple although it sits below the median ranging over the last few years 33 today against 39 where the forward P sits at 29 12 times forward earnings. Now it is below their 5year 33 but a discount to its own premium history doesn't automatically make the stock cheap in absolute terms. The other thing for consistency, we will show the blue tunnel which is from simply safe dividends highlighting the intrinsic fair value. It sits I think for the first time pretty much in the last year slightly below or in fact right at the bottom indicating a potential undervaluation signal where Wall Street as we said earlier did give the company a strong buy rating. Their average price target $2,139 implying just shy of 30% upside. It is encouraging, but a consensus target doesn't protect us if the cycle disappoints. We can also see the most bearish target sitting below $900. And my intrinsic value comes to $1,818 indicating a margin of safety sitting around 8%. Not as much as we would typically like. And the DCF, well, we've used 15% discount rate does sit at 8% and against the market price, we do get the undervaluation signal implying around 9% upside. Now the inputs you can argue definitely plausible maybe slightly generous. So probably best not to treat this result as a conservative flaw. And you can also see the cyclicality. If we look at the 5year free cash flow KGA sitting at 3% the 10ear sitting at 27 the reverse DCF saying for the market price that we see today just shy of 14% is baked in. So ASML can absolutely compound for many years especially as advanced chips require more complex manufacturing. But at this price, most of my confidence comes from the company's moat rather than the valuation that's protecting me. So my verdict for ASML is a watch list or a hold. I become more interested below $1,500 and significantly more interested in the low400s. ASML scores in my view a 7 out of 10. And before we move into the next stock, just to let you know, I released one weekly article uncovering severely undervalued stocks as well as what's gone in the market. You can click below on the pin comments, sign up and read all of these straight away. As always, we talk about severely undervalued stocks and market updates. Now, the next stock we're looking at in sixth place is lows. The share price sitting around $200 and it's fallen around 17% year to date. Over the last year, down 23% and the initial valuation, it looks far more reasonable than ASML's trading, as we can see, at a new 52- week low where we get a respectable buy rating, 4.2 out of five from Wall Street. a hold from seeing alpha and the business well it benefited enormously from the home improvement boom with annual revenue rising from around $69 billion to more than 97 billion the latest 12-month figure here though we can see is recovered to around 90 billion and the issue with Lowe's is actually not profitability Lowe's remains an excellent operator is the growth we can see forward revenue expectations is just above 4% for EBIT DAR well it's sitting at 2.6 six and free cash flow growth that's expected pretty much to be flat and the valuation well it partly reflects the weakness lows trades around 16 times forward earnings below the 5year of 18 while the dividend sits at 2 1/2% above the historical norm of two and that's why we also get a slight undervaluation signal like we saw with ASML lows is trading right at the bottom end if we look at the last 5 years what you'll notice though is while the share price has been flat so in fact has the underlying fundamentals very little movement in terms of the upwards momentum that we like to see. You can note that from around 2020 to 2023. Since then, it has looked like it has stayed pretty much flat. Leverage is also something to consider with lows. Net debt to EBIT DAR sits at 2.6 times for both the last 12 and next 12 months. It is in fact below the preferred threshold, but this is not a debt-free defensive story. Now, the average analyst target sits at $254 implying around 27% upside. Target does look attractive, but it looks to assume the housing and renovation cycle improves rather than remaining sluggish. And the blended valuation, it comes to $241, which indicates here a 17% margin of safety is reasonable, although I wouldn't say it's overwhelming for a slow growth retailer. And if we look at just the DCF, well, we do get a slightly higher figure around $270. But also worth pointing out that if we did change the discount rate, well, it would materially affect the value. So the bull case is a housing recovery continue professional customer gains and discipline buybacks. The bare case is that expensive mortgages keeps transaction activity weak while Lowe's continues carrying substantial fixed cost and debt. So at around $200, Lowe's is investable but not exceptional. I'd prefer a purchase between $180 and $190. I'd give it a 7 and 12 out of 10. And then we move to number five which is McDonald's where the stock has fallen around 15% year to date over the last year slightly worse down around 17 and it's also trading pretty much at 52- week lows like we saw from low just a minute ago. It is unusual for one of the world's most durable consumer franchises. We get a double buy from Seek Alpha Wall Street sitting around the four out of five region. And the weakness, well, it's got a clear cause. Comparable sales growth slowed dramatically from double digits to negative territory before recovering to 4%. More recent growth has improved, but still remains modest rather than spectacular. And the forward numbers, they tell the same story. Revenue growth expected 4.6%. EBIT DAR sitting at 5 12%. Diluted EPS moving forwards sitting around 6%. Reliable, yes. Fast, not really. And the valuation well it's finally becoming more supportive. The forward P sits around 19.7 times compared with a 5year average at 24 while the yield has risen 2.85 above the five of 2.3. So both these cases yield the highest in at least the last 5 years. Valuation the lowest in the last 5 years do point to a double undervaluation signal which is well reflected when we look at the blue tunnel. Unlike the other two, this one actually does sit below. So there is a disconnect that would equate to an undervaluation. Look at the last 5 and 10 years. We haven't seen it that common. In fact, we notice a few times going back to the last 10 years and the dividend is backed by an extraordinary record 49 years without a reduction and it actually increased the dividend during the last recession in ' 0709. Forward payout ratio that's sitting around 56%. Manageable though no longer exceptionally low. Where debt is the main constraint, net debt to EBIT Dar is 3.18 expected to lower slightly is acceptable for a highly franchised business but it definitely limits the flexibility and the present draw down is meaningful without being unprecedented. McDonald's has recovered from repeated 15 to 20% declines and its worst draw down we can see was around 33%. Wall Street's average target that sits $315 implying 21% upside and that sits above my more conservative base range because I'm unwilling to assume an immediate return to historical premium multiples. And the blended rate, well, that comes to $295 and we can see that equates to an 11% margin of safety. The standalone DCF, well, that's actually much less generous $266. We're on a reverse basis. It sits at 9.8%. And that's actually not too dissimilar from where the stock trades today. So McDonald's looks inexpensive relative to history. But if you're just looking at cash flow, well, it looks to be fairly valued. So I'd happily owe McDonald's for a decade, but I prefer to initiate or add in the $240 to $250 range. It scores around an 8 out of 10 and ranks fifth today. And before the next stock, this next clip explains why patience does not require a bearish long-term forecast. We're going to listen to the distinction between a temporary reset and the beginning of a broader bare market >> behind us. So you take all that in total. And then he goes one step further and says the following and I quote, "I would use strength to reduce some exposure and add inexpensive protection into this event window. I'm not looking for the beginning of a broader bearish turn. I am looking for a tactical reset. If September delivers one, it could create a better entry point as we move toward a potential more constructive setup beginning around mid October. That is the takeaway. A reset is useful only when we know what we want to buy and our required price. The next company's cash flow requires one important adjustment. And number four is Netflix. This one's trading around $80. And the stock trades at a valuation that would have looked almost impossible during the company's most expensive years, down 14% year to date over the last year, down 33, trading towards the lower end of the 52- week range. Respectable buy from Wall Street, weak buy from Seek Alpha. The long-term record is exceptional. Paid memberships compounded at roughly 20% while net income grew much faster. Netflix has moved from funding growth with cash burn to producing substantial and recurring profits. Quarterly revenue, well, that's in fact climbed from below $3 billion to more than 12 billion. That reflects pricing power, global scale, and content monetized across hundreds of millions of households. where their operating profit has expanded alongside revenue, reaching more than $10 billion on an annual chart. While the operating margin approaches the low30s, is no longer merely a subscriber growth story. It's a margin in cash flow story where Netflix also remains the clear streaming leader in viewing time. Yet, we can see YouTube take an even larger share of television usage, reminding us that Netflix competes for attention against more than just the traditional studios. growth that also looks strong. Revenue year that was sitting at 16% forward revenue growth somewhere between 13 and 14% with earnings per share expected decline by around 24. And the stock trades around 22 1/2 times forward earnings well below its 5year average of 35. We're talking a 36% discount although it still does sit higher than the sector by around 65%. and consensus. Well, they expect the earnings multiple to fall from roughly 22 times in 2026 to around 15 times by 2029. It looks cheap unless the sharp earnings growth expected before then proves to just be temporary. And the average analyst target sits at $94, giving around 16% implied upside is plausible, but the DCF requires more scrutiny than just what the target suggests. and my DCF, I get to $96, which indicates a 17% margin of safety. And one thing that I will point out here is that the model does begin with around $12.5 billion of forecasted free cash flow. Just bear in mind that that does include a large one-time termination payment. So, if you wanted to normalize it rather than just use 10%, but that essentially spread over the longer term, then it'll reduce the estimate very slightly. So, for Netflix, I would become a lot more enthusiastic if we see it back around the $70 mark. I'd give it just above an eight out of 10. Rank it fourth. An excellent business with limited normalized upside today. Now, at number three, we have American Express. And this is the first company where I believe the current valuation, business quality, and earnings visibility begins to align in a genuinely attractive way. They're also down 12% year to date. Over the last year, pretty much flat, trading towards 52- week lows with a double but weak buy from Seek Alpha Wall Street. and American Express benefits from two powerful growth engines. Cards in force have increased steadily while the average fee per card that's risen even faster. The combination here expands both the customer base and the economics generated from each relationship while spending that remains healthy across goods and services and travel and entertainment. We can see total bill business growing 11% with travel entertainment growing 13% year-over-year. annual revenue. Well, that's almost doubled from around $ 31 billion in 2020 to more than 60 billion in 2025. While net incomes increased from 3 billion to sitting now around 10. Now, forward growth expectations, they're not spectacular, but they are respectable. Revenue growth, well, that's sitting close to 10%. Forward EPS, that's sitting at 12.8 and long-term EPS sitting at a fairly similar level. In terms of valuation, well, it trades at 17 1.5 times forward earnings, almost exactly in line with the 5year average. Dividend yield as well pretty much spot on. So, both of these point to a reasonable signal, which is confirmed when we look at the blue tunnel sitting bang in the middle. Although, notice it's not been in an undervalued level once in the last year. Zoom out to the last 5 years. Very, very short period of time in 2025. The same to be seen in 2023. And Wall Street, their average target, $376, implies around 16% upside is attractive for a company capable of compounding earnings in the low double digits. And the blended valuation gets to $388, indicating a 17% margin of safety. Now, if you solely want to look at the DCF, we get $487. As you can see here, growth rate, we use 4% lower than the 5year 10ear KGA. Reverse DCF actually negative. But I wouldn't solely rely heavily on conventional free cash flows. American Express is a financial institution. Customer loans, funding, working capital. They all behave differently from an industrial company, making excess capital and earnings based methods a little bit more appropriate. The principal risk is credit. A premium customer base has historically produced better loss performance. But no lender is immune if unemployment rises and consumer finances weaken. The offset here is that American Express owns a closed loop network, a premium brand, and direct customer relationships. Those advantages support pricing, data, and loyalty economics that a generic bank car portfolio cannot easily reproduce. At $324, I see reasonable upside and probable long-term compounding. Below $310, it becomes very attractive. So, I'd score American Express 8 and a half out of 10 and rank it in third place. We've now reached the top two. Both generate substantial cash. Both are repurchasing shares and both appear much cheaper than their growth rate suggests. This final market clip explains how I would use any further September weakness. >> Fine by me. That's not what I'm after. I am actually looking for the volatility in September to add to some of the positions that I have already been adding to. And maybe there's some new opportunities. >> You mean you hope you hope that things get a little more volatile. You get a little pullback and you have a window to to buy some things that you'd like to add to. >> Yeah. Yeah. Yeah, and I think it's really interesting that while momentum has corrected, value has outperformed growth year to date by 14%. I think a lot of that does have to do with the valuations, number one. Number two, it's higher interest rates, right? >> Use volatility to acquire pre-selected businesses at better expected returns, not to buy everything that falls. My second rank company is the strongest risk adjusted opportunity in the group today. And at number two is Booking Holdings. This one trades around $195 down 9% year to date. Over the last year, down 11% trading around the midpoint of the 52- week range. Very near strong buy rating from Wall Street. Seek Alpha 4 out of five. Booking is the largest by gross bookings and online travel structural growth remains intact. Scale improves marketing efficiency, hotel supply, customer choice, and the platform's value to both sides. And we can see the latest comparison showing bookings total gross bookings growing 15% behind Airbnb's 19% but ahead of Expedia 13. Now Booking does not need to lead every quarter to preserve the strongest overall economics. Where I find the valuation gap striking, Booking's EV to EBIT sits around 18 compared with roughly 35 for Airbnb. Yet Booking produces more cash and has a far longer record of profitable execution. We can also see here that the growth table supports the case. Forward revenue that sits 10.5% forward ebitar sitting at 14% and forward EPS that's sitting above 18 where their free cash flow per share has risen from almost nothing in the mid2000s to more than $11. The temporary 2020 decline makes the resilience of the subsequent recovery even clearer. where management returns that cash aggressively. Quarterly repurchase have repeatedly exceeded$1 or2 billion with the latest reaching $3.8 billion at a sensible valuation. These buybacks create substantial per share value and booking also now pays a dividend though the yield remains below 1%. The more important figure is the forward P that sits at 17 and a half times below the 5year average of 20 and a half and that also gives us an undervaluation signal sitting below the bottom end although we have seen this repeatedly in just the last 6 months over the last 5 years. You'll notice this one was actually trading undervalued back in 2022. Now the average analyst target implies a material upside from the current price $23922%. But the reason booking ranks second is not the target is the combination of high teens per share growth and a high teens earnings multiple. And we can see for booking we get a value of $265 from the discounted cash flow model equating to a 27% margin of safety. When we look at the DCF we use a 4% growth rate lower than the 5year lower than the 10-year and also the reverse DCF is implying no growth to justify today's market value of $195. The risk though do remain travel is cyclical. Geopolical disruption can hurt demand and Google remains an important source of customer acquisition, but booking scale, direct traffic and variable cost structure. It provides meaningful protection. I would buy booking around the current price and add more below $190. It scores a 9 out of 10 and ranks second. The cleanest blend of quality, valuation, and lower execution risk. Now at number one, we have apploving ticker A. This is also the most controversial selection. The stock has fallen more than 50% this year. Yet the business continues growing at a rate that normally commands a much higher valuation. Now over the last 12 months is down 35% trading pretty much around 52e lows where we get a near strong buy rating from Wall Street. Respectful 4.1 out of five buy from Seek Alpha and revenues increased from under $500 million in 2018 to roughly $6.8 billion in the last 12 months. The share price once followed and now it's moved sharply in reverse. And just look at the growth numbers. They remain exceptional. Revenue growth yearonear 61% forward revenue still respectable sitting at 30. Forward EBIT dollar growth 47% and forward EPS forecasted around 64. Where profits already moved from $772 million in 2023 to more than 5 billion over the last 12 months. Consensus expects further growth towards more than 10 billion by 2028 where quarterly EPS estimates also continue rising. We can see here they're expecting around 58% growth from the second quarter of 26 to the fourth quarter of 27 with a compounded annual growth rate above 35%. Despite that growth, the estimated P falls from around 20 times based on 2026 numbers to 15 times on 2027 and close to 12 times when we look on 2028. That is provided the consensus earnings materialize. And well, the valuation grade is only a D minus because sales and book value multiples remain extremely high relative to the sector. That is a legitimate warning. Apploving does look cheap on earnings, but not on every single metric. And the disagreement between the factor grays captures the entire investment case. Growth and profitability. They receive top marks. Valuation looks weak against slower software peers. And momentum, well, that's deeply negative after the collapse. And Wall Street's average price target $516 implying around 65% upside and the low target $325 pretty much close to where the stock already trades. Now my valuation from the DCF comes to $533 implying a massive 42% margin of safety. It looks extraordinary but disciplined investors must challenge the model rather than celebrate it because look the DCF is starts with 5 a.5 billion that is based on analyst estimates and then the free cash flow that uses 10% moving forwards. The medium case as we said $533 indicating 71% upside and even if we use the lower case of 5% well we still have double digit upside $376 21% expected but then if we do change the discount rate say 10% while the intrinsic value falls from 533 to 367 still implying some upside. Now all of these sensitivities matter because apploving carries more risk than booking. The advertising platform depends on model performance, customer trust and continued access to mobile ecosystems. Regulatory scrutiny and questions around the platform must be taken seriously. And the counterargument is visible in the actual profits. This is not a pre-revenue company asking investors to fund the dream is reducing billions in operating profit while its margins expand with scale. The share price decline therefore appears to discount a major slowdown before that slowdown is visible in the reported numbers. If growth merely normalizes rather than collapse, the current multiple can prove to be too pessimistic. The key quarterly test is not whether revenue remains above 50% growth forever. It's whether forward growth stays comfortably above 20% while margins, cash conversion, and customer concentration all remain healthy. So I wouldn't look at app loving and buy this all in one transaction. I'd build in stages below $320 and size it below booking because the potential downside is wider. On pure upside growth and valuation symmetry, AppLoving is the strongest opportunity of the seven. I'd give it a 9 and a half out of 10. Rank it number one. Booking is safer, but Apploving offers the larger potential mispricing. So, here's my final ranking. Seventh ASML, arguably the best business, but with too little valuation protection. My preferred entry is below $1,500, ideally in the low 14s. In sixth is Lowe's, the yield and multiple improving, but the growth remains weak. My stronger buy range is between $180 and $190. In fifth place, McDonald's. The franchise remains durable with a standalone DCF sits near the market price. I'd add more aggressively between $240 and $250. In fourth is Netflix. Its multiples compressed but normalized cash flow makes it roughly fair value near $81. Below 75 the riskreward becomes much more compelling. Third is American Express. Its closed loop network premium customers and doubledigit earnings potential. They all justify the valuation. It becomes very attractive below $310. Second is booking holdings. My favorite lower risk purchase, strong bookings, high cash flow, and aggressive repurchase are available around 18 times forward earnings at below $190. And first is Apploving the highest upside and highest uncertainty opportunity. The market's pricing and deterioration while current growth remains exceptional. I'd buy in stages around today's price. For the best combination of predictability, and valuation, I'd choose booking. Its cash flow history, scale, and buybacks make the case easier to underwrite. But for the largest mismatch between price and operating performance, I choose Apploving. That is why it wins while still requiring tighter position sizing. So volatility is not automatically dangerous. It becomes dangerous when we buy falling prices without understanding the expectations and useful when we know the business, establish a value and wait for our price. September could remain difficult. Yields could rise, energy could revive inflation and momentum could weaken. None require us to predict the index or abandon quality. Our advantage is simpler. Demand more safety when uncertainty rises. Distinguish temporary weakness from permanent damage. And scale into opportunities where the numbers support the upside. Booking. That's the cleaner riskadjusted opportunity, visible cash flow, proven platform, and evaluation that doesn't require perfection. Apploving is the more aggressive upside opportunity. The remaining five stay on my watch list until price or fundamentals improve. But let me know which stock you would rank first and at what price you'd buy. Subscribe for the next valuation ranking and don't forget to sign up to the weekly article. More importantly, have a great day. I'll see you all on the next one.