JThree months into 2022, markets are in turmoil and high-priced stocks are falling rapidly. Investors can seek safety in value-oriented investments that are less vulnerable to sharp declines. The companies listed here are all profitable and trade at incredibly cheap multiples of future earnings.
Among the best value buys out there today are organon (NYSE: OGN), Citigroup (NYSE:C)and fedex (NYSE: FDX). Together, they can bring some stability and diversification to your portfolio.
Organon comes from Merck last year, and its operations are focused on women’s health, established medicines and biosimilars. While that’s not much for a growth stock right now, Organon could be a stable long-term buy. The business generates strong gross margins (north of 60%) and has always been profitable.
Last month, it reported sales of $1.6 billion for the quarter ended Dec. 31, down 1% from the year-ago period. However, it reported 6% growth in its women’s health division. Unfortunately, established brands, which are its largest segment, declined by 2% due to competition and loss of exclusivity.
The company is investing in its growth, announcing in December the acquisition of Forendo Pharma, a clinical-stage company developing treatments for endometriosis (a disease that affects up to 170 million women) and polycystic ovary syndrome.
Although recent results have been poor, there is potential for Organon. And the stocks are heavily discounted, giving investors added incentive to try their luck on this relatively new stock. Trading at a price/earnings (P/E) multiple of 6.4, it’s incredibly cheap; Merck, which is already a relatively cheap stock, is trading at just 11 times future earnings. Additionally, Organon pays an above-average dividend yield of 3.2%, more than double the S&P500 average yield of 1.3%.
Investors are starting to see the value of this fairly stable business. So far in 2022, stocks are up 15%, better than the S&P 500’s 4% losses over the same period. While there is some risk with Organon since its operations are not showing much growth, given the discounted earnings multiple and strong margins and fundamentals, this might be an underestimated buy at this time.
Bank stocks can offer investors good value, and Citigroup is no exception. And now that interest rates are on the rise, there could be additional incentive for investors to add a top banking stock to their portfolios. With higher interest rates, banks are more likely to profit from the difference between the rate they pay depositors and what they charge on loans.
Last year, Citigroup’s earnings doubled, at least in part, because it was able to release provisions for credit losses amid a stronger economic outlook. However, the company’s loan interest income fell 12% to $35.4 million. And the 2020 figure was already down 16% from the previous year.
A strong economy this year, combined with higher interest rates, could lead to a resurgence in loan interest income for Citigroup, which would translate into strong performance for the company in 2022. But even if that doesn’t happen and inflation and geopolitical issues derail the economy, it’s usually a long-term safe bet to expect the economy to do well.
And that’s why buying these bank stocks right now could be a win-win move for investors. Year-to-date, it’s down 7% and its forward P/E is around 8, while rival banks JPMorgan Chase and Bank of America are trading at multiples of around 13. Citigroup is also the only one of the three that is trading below its book value – a very cheap ratio of just 0.6. Add to that its high-yield dividend yielding 3.7%, and it sounds like a value investor’s dream.
A positive long-term outlook for the economy is also a reason FedEx might be worth buying on the downside. Down 11% in 2022, it is down amid geopolitical issues. And it’s likely the company will have tough quarters ahead due to a slowdown in online shopping.
Consumers are likely to shop more in stores as the economy returns to normal. Many of the top e-commerce stocks are already struggling this year in anticipation of that, with Shopify down about 50% since the start of the year and eBay 12% drop. The powerfull Amazon remains resilient with gains of just over 1%, but even that is a deadly comeback for the high-powered company.
However, FedEx still looks solid today. In its most recent quarterly results, for the period ended Feb. 28, its sales rose 10% to $23.6 billion and net income totaled $1.1 billion, up 25% from at the same time last year. FedEx says the results could have been even better had it not been for the emergence of omicron, which disrupted its operations.
With stocks falling, now could be a great time to stock up on the logistics company. Trading at just 11 times future earnings, the stock looks like a bargain compared to its rival United Parcel Service, where investors pay a multiple of 17. Although 2022 could be a tough year for FedEx, the long-term trajectory remains promising, which is why it’s a great buy. It also pays a dividend yield of 1.3%.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns and recommends Amazon, FedEx and Shopify. The Motley Fool recommends eBay and recommends the following options: $1140 Long Calls January 2023 on Shopify, $62.50 Short Calls April 2022 on eBay, and $1160 Short Calls January 2023 on Shopify. 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.