The S&P 500 is near an all-time high, but these stocks are still cheap
Aanother day, another historic record. The US stock market is on fire and shows no signs of slowing down. When times are this good, it can be easy to get complacent and forget the basics. Or worse, fall prey to the hype of the actions of memes and other quick-money facades.
With that, we asked three of our Motley Fool contributors which companies look cheap despite the growing market. They got their hands in the trash and got out Lockheed Martin (NYSE: LMT), Brunswick (NYSE: British Columbia), and Royal Gold (NASDAQ: RGLD). Here’s why each of these established businesses might be worth buying now.
Image source: Getty Images
So much good and so little harm
Daniel Foelber (Lockheed Martin): Lockheed Martin shares have risen 7% so far in 2021. That’s a good comeback until you compare it to S&P 500, which is up more than 11% over the year. In fact, Lockheed and its peers have significantly underperformed the market over the past three and five year periods.
Lockheed reported record revenue, net income and free cash flow (FCF) in 2020. Given its dominant performances, investors might wonder why Lockheed is so cheap. After all, its price-to-earnings ratio is only 15.3. And its quarterly dividend was raised to $ 2.60 per share, bringing the annual yield to 2.7%. With plenty of FCFs to back the dividend, Lockheed has the makings of a high profile income stock.
Despite all of these attractive qualities, Lockheed is subject to one of Wall Street’s biggest fears: slowing growth. He does most of his business with the US government. Even though the overall federal budget has increased, defense spending has largely stagnated in recent years. The company has taken up this challenge. Over the past five years, it has grown revenue at a compound annual growth rate (CAGR) of 6.7%, net profit at a CAGR of 5.7% and FCF at a CAGR of 9%.
However, the White House requested $ 715 billion from the Pentagon for its 2022 fiscal year, which is only 1.6% more than what was spent during the period of the previous year.
Although the orders of some Lockheed products have increased, prolonged periods of low defense spending are certainly a headwind. The company is doing what it can to meet this challenge. Investments in hypersonic missiles, satellites and nuclear defense programs constitute its space segment, which could be one of its main sources of growth. His efforts have even aroused the interest of renowned growth investor Cathie Wood. Considering all the positives, Lockheed looks like a steal at its current price.
Lee samaha (Brunswick): This yachting company is best known for its major boat brands (Sea Ray, Bayliner and Boston Whaler), but it makes most of his money propulsion (Mercury outboards) and parts and accessories.
This is a crucial point to understand because the explosion of interest in boating created by the pandemic, and associated boat sales, could create a long-term growth opportunity for propulsion and parts sales. Brunswick spare. Indeed, due to the enthusiasm generated by nautical activities, Brunswick is ahead of its three-year objectives set at the beginning of 2020.
As such, management improved on its 2022 targets when it presented at Investor Day in May. The new 2022 target is $ 5.7 billion to $ 5.9 billion in revenue, up from a previous target of $ 4.9 billion to $ 5.2 billion. Likewise, the EPS target has been raised from $ 8.25 to $ 8.75, from a previous range of $ 6.25 to $ 7.25.
While there is no guarantee that interest in water recreation will remain so strong in the post-pandemic environment, Brunswick’s assessment appears to have a good built-in safety margin. Based on the current share price of around $ 94, Brunswick is trading only 11 times the 2022 estimate. That’s too cheap for a company with good long-term prospects.
There is gold in the basket
Scott Levine (Royal Gold): Follow the investment world, even superficially, and you probably know that when market volatility kicks in, investors frequently flock to gold for protection. In times like these, however, with the market constantly flirting with historic highs, conventional wisdom would be that there is nothing alluring about the precious metal.
It is therefore not surprising that the price of gold has fallen by around 2% since the beginning of June. But seeking to gain exposure to gold now is exactly the type of contrarian thinking that could lead to substantial gains.
You can put down your car keys – I’m not suggesting you run around and start buying gold coins. A better approach to investing in metal is a royalty and streaming company like Royal Gold. By providing money to help with mining, these companies do not take on the significant risks that mining companies face in developing their assets, thus providing a less risky investment opportunity.
For those who are not convinced that buying Royal Gold shares is a more attractive option than hoarding bullion, consider the fact that in the long run, Royal Gold, which generated 79% of its income from the metal in 2020, significantly outperformed the rising market. gold price.
RGLD data by YCharts.
Of course, this does not guarantee that the business will operate the same way in the future, but it is certainly worth noting; It is also important to recognize that the shares of mining companies are highly correlated with movements in the price of gold.
Looking ahead, Royal Gold has a strong portfolio of developing projects that will help it achieve growth. Currently, the company’s portfolio includes 41 assets in operation and 146 in various stages of development.
Fortunately, Gold Bugs won’t have to cough up a lot of green to pick up Royal Gold stocks. The stock is currently changing hands at 20.7 times operating cash flow, which is a discount from its five-year average multiple of 22.3. Do you think all gold stocks are on sale now due to the recent drop? Think again. Actions of Franco-Nevada, another leading royalty and streaming company, are a bit expensive; The stock is trading at 34.6 times operating cash flow – a premium over its five-year average ratio of 31.7.
10 stocks we love better than Lockheed Martin
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Daniel Foelber has no position in any of the stocks mentioned. Lee samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Brunswick and Lockheed Martin. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.