A proven way to achieve high returns as an investor is to buy stocks of strong companies that have fallen out of favor on Wall Street. These companies often face ongoing challenges that threaten profits over the next year or two, but not overall growth. In this way, you expose yourself to short-term paper losses and in return receive impressive profits for many years. In fact, you are paid to be patient.
Of course, many stocks are cheap for reasons that affect the company’s long-term growth prospects. The challenge is to avoid these situations while weeding out the truly temporary business stumbling blocks. Let’s take a look at a few attractive candidates who might suit you.
1. Coca Cola
Coke (NYSE:KO) The stock missed most of the pandemic-era rally in 2021 and then was left out of the post-pandemic market rally last year. As a result, the drinks giant’s shares have risen just 24% over the past five years, compared to a 73% rise in the S&P 500 in these times.
Still, Coca-Cola remains a formidable business, with sales volumes and prices rising in 2023. The yields are excellent and the profit margin is significantly higher than the competition PepsiCo. The company generates enough cash to pay one of the most stable and longest-running dividends on the market.
And its growth prospects are solid as rising demand for water, energy drinks and other new niches offset declines in its more traditional soda portfolio.
2. Electronic Arts
Electronic Arts (NASDAQ:EA) plays a game that goes in his favor. The video game publisher owns a vast collection of intellectual property that spans popular niches such as sports and casual games. Steady growth in audience size (and monetization rates) has helped annual revenue rise to $8 billion from less than $4 billion a decade ago.
Games are becoming increasingly profitable as the sales model increasingly shifts to a software-as-a-service approach. EA is a leader in this space, with subscription services accounting for 70% of annual revenue. Wall Street is worried about a slowdown in growth after the pandemic hits, but smart investors can look past that volatility to EA’s much greater potential in 2025 and beyond.
3. McDonald’s
Fears of a recent slowdown in growth should make investors sweat the discounted price MC Donalds (NYSE:MCD) Share. The fast food chain noted that customer traffic fell into negative territory at the start of 2024, which is not good news for a restaurant company. Fewer guests means fewer opportunities to sell new menu items or the sandwiches that have been popular for decades (like the Big Mac).
McDonald’s has overcome many similar challenges in its years at the top of the fast food industry. It will also come out of this doldrums with the help of promotions and a stronger push into the drive-thru and home delivery segments.
In the meantime, investors can take in the tasty dividend payout and marvel at McDonald’s industry-leading profit margin. In fact, the chain aims to increase operating profit to 50% of sales in the next few years.
4. Apple
Apple (NASDAQ:AAPL) Stocks haven’t moved over the past year, even though the overall market has gained over 20%. There’s no shortage of concerns about this member of the Magnificent Seven, including sluggish growth in China, stagnant demand for its hardware products, and relatively weak profitability compared to rivals Microsoft.
It would be a mistake to bet against the iPhone maker in the long term. It has the largest installed base in the industry, with 2.2 billion users interacting with its brand across the tech titan’s hardware. That’s a huge audience to market its next product launches to, whether they’re iterative updates or revolutionary entries in new categories.
Apple looks cheap given its current valuation, which is less than seven times annual sales. If you’re generating plenty of cash ($40 billion in the last quarter alone), you’ve got a recipe for crisp investor returns from here.
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Demitri Kalogeropoulos has held positions at Apple and McDonald’s. The Motley Fool has positions in and recommends Apple and Microsoft. The Motley Fool recommends Electronic Arts and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
Do you have $500? “4 Absurdly Cheap Stocks Long-Term Investors Should Buy Now” was originally published by The Motley Fool