Holiday weekends are infamous for big sales. You can even stocks on sale this weekend, if you know where to look.
Here’s where the deep discounts are hiding.
With stocks at all-time highs, finding bargains has grown increasingly challenging. There are some names, however, that are not participating in the rally. We can consider these “on sale”.
Fortunately, mispriced stocks happen. To identify market bargains, target companies with fast-growing profits that trade for multiples of earnings less than their expected profit growth rates.
If stock ownership is about the discounted value of future profits, then this formula can ferret out stocks poised for outsized gains.
It’s a simple way of saying that investors desire profit growth, so we can anticipate that stocks with such growth that are trading for low valuations will be bought at some point in the future.
The only issue: timing.
Eventually, buyers emerge. When they do, the market corrects to the upside, eliminating the discount.
In the spirit of the Memorial Weekend sale, here then are three stocks on sale today:
JP Morgan (NYSE: JPM)
It’s hard to love bank stocks these days.
A halt by the Fed in interest rates is eating into profits. And the threat to cut rates down the road isn’t helping.
Higher rates equal higher margins.
And add in the exposure to China by many large banks and you have trouble finding a financial player worth your investment dollars.
But JP Morgan looks like a stock on sale.
First, JP Morgan under Jamie Dimon is a “best of breed” stock.
Net income of $31.2 billion and the nation’s largest bank by assets and market capitalization make it the best-run bank by a long shot.
JP Morgan is already expected to grow profits by nearly 20% from this year to the next.
The stock is up almost 12% year-to-date and at current prices, JP Morgan shares trade for 10.3 times 2019 estimated earnings.
Hey, it even has a reasonable yield of 2.93% making it an attractive candidate for income investors as well.
You get the stock on sale with a dividend kicker.
That’s a discount worthy of any Memorial Day sale.
Target (NYSE: TGT)
The “consumer” is back…the economy is booming.
… and yet retail stocks continue to take it on the chin.
Nordstrom’s…JC Penny…Kohl’s…all missed recent earnings reports and their stocks are down. Even Best Buy beat earnings but the stock sold off.
The “tariff wars” continue to impact a number of retailers who source their goods to China.
And there is always the present “death by Amazon” threat to traditional “brick and mortar” retailers.
But one company is bucking the trend…Target.
The stock is up 21% year-to-date.
In it’s recent earnings beat…same store sales were up 4.8% while online revenue rose 43%.
What about profits? They keep growing and growing.
That means the valuation moves lower and lower, giving us a great opportunity to buy profit growth on the cheap.
For Target, the company is looking to grow profits by 19% in 2019. At current prices, shares trade for just 9 times 2019 estimated earnings.
And best of all…Target seems to have found a growth model that is working in today’s tricky retail environment.
You won’t find a better bargain this summer.
DR Horton (NYSE: DHI)
In almost all cases, a stock trading sideways gets cheaper every day.
Why? Because profits are growing, thus lowering the valuation.
The longer the drift, the better.
Over the last two years, DR Horton is up about 20%. During that time, profits kept rolling in.
Like the airlines, homebuilder stocks have been red-hot. Now, everyone seems to be waiting for an earnings collapse that never materializes.
Earlier this year, weather conditions negatively impacted results. Now that summer is here, prime homebuilding season is upon us.
Analysts expect DR Horton to grow profits by 11.3% from this year to next. At current prices, shares trade for only 10 times 2019 estimated earnings.
At these prices, share price discount isn’t likely to last long.
In fact, within a week or two after Memorial Day, shares of DR Horton should jump.
Go ahead and shop for good deals this holiday weekend…
… Buy while these stocks are still on sale.
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