Although the stock market has recovered somewhat in recent trading days, it is still below its all-time highs. Additionally, some great stocks that sold off remained in the red. This is despite their high-quality businesses, which should generate profits that will reward investors for many years to come.
Instead of lamenting its failure to recover, investors should not miss the opportunity to buy. In this article, three Motley Fool writers each highlight one of their favorite bargain stocks worth buying, including a special situation opportunity Albertsons company (NYSE:ACI)Streaming Leader Year (NASDAQ:ROKU)and beaten-down bank stocks Live Oak Bancshares (NYSE:LOB).
This video streamer is down, but it’s far from out of service
Eric Volkman (Roku): A perceived battle against a major retailer has significantly dampened sentiment toward Roku, a video streaming device maker and platform operator. The company’s shares plummeted in mid-February and have remained virtually in the mud ever since.
It’s not hard to figure out why. There was a hot rumor at the time Walmart (NYSE:WMT) wanted to buy the smart TV manufacturer Vizio and thus bring the already close business partners even closer together. This rumored deal was confirmed just a few days later; Access the Roku Advanced Slide.
What worried Roku viewers the most was Vizio’s SmartCast TV operating system (OS), which is comparable to Roku’s operating system. The biggest concern is that Walmart, with its vast financial resources, will pour capital into SmartCast to take market share away from Roku. Since the latter company is still looking for advertising revenue through its operating system, this could pose a real threat to its survival.
I think this fear is very exaggerated. Of the two, Roku is by far the more dominant TV-OS player, with its active user base of 80 million as of the end of 2023 – more than four times larger than Vizio’s.
Additionally, Walmart’s press release on the Vizio deal said that owning Vizio would help the company “connect with and serve its customers in new ways, including innovative television, in-home entertainment.” – and media experiences”. It sounds like Walmart is looking at Vizio as a next-generation advertising channel rather than its attempt to be the frontrunner in the TV platform patch.
Meanwhile, as streaming services continue to proliferate, running arguably the most successful platform-independent operating system will make Roku an increasingly attractive target for advertisers. The streaming era is still quite young, and as it matures, this company is sure to remain one of its more important pillars.
Everyone still has to eat
Chuck Saletta (Albertson’s): If there’s one thing the stock market often struggles with, it’s uncertainty. In the case of leading grocery chain Albertsons, the uncertainty is whether regulators will allow other supermarket operators Hook (NYSE:KR) complete the planned acquisition of Albertsons.
But when you step back from the headlines and look at the overall business, this uncertainty looks more like a storm in a teapot than fundamental concerns about Albertsons’ future. Should the company remain independent, Albertsons shares will trade at about eight times the company’s expected earnings.
Considering the fact that analysts expect the company to grow its earnings by around 8% on an annual basis over the next five years, that looks downright cheap.
On the other hand, Albertsons shareholders would receive about $27.25 per share if Kroger was allowed to complete the acquisition. With Albertsons shares recently trading at $20.32, that could be a gain of up to 34% if the deal actually goes through.
If the deal actually goes through, the purchase price will of course fall slightly due to the number of branches to be sold.
All in all, it looks like the worst-case scenario is that Albertsons shareholders still own a solid company that’s currently trading at a good price. After all, everyone still needs to eat, and that fact will hold true no matter how this particular acquisition attempt ends.
Remembering the big picture
Jason Hall (Live Oak Bancshares): Banking can be a worrying place to invest. Banks can be very profitable when the economy is doing well (like now). But things can get ugly quickly if the economy turns south (as so many investors continue to expect). That’s certainly contributed to Live Oak’s shares falling sharply in recent months.
Factor in recent quarterly results – which lacked much growth for a core growth-oriented bank – and you get a stock that’s down over 25% so far this year.
This is where smart investors can take advantage of market dislocations and short-termism to find great long-term investments. Live Oak’s business is lending to small businesses. And in the current environment, management is sticking to its strategy: focus on high-quality, low-risk borrowers in industries they know well and that have excellent profitability metrics and long-term growth potential.
While the market focuses heavily on current and next quarter results as well as near-term economic concerns, Live Oak is building a company that can continue to deliver strong results for decades to come.
And today you can buy shares at a bargain price of around 17 times earnings and 1.6 times book value. With a market cap of around $1.5 billion and assets of less than $12 billion, long-term investors should really consider buying Live Oak at these prices.
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Chuck Saletta holds positions at Kroger. Eric Volkman has no position in any of the stocks mentioned. Jason Hall holds positions at Live Oak Bancshares. The Motley Fool has positions in and recommends Live Oak Bancshares, Roku, and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
Stock Market Sell-Off: 3 Bargain Stocks Worth Buying Now was originally published by The Motley Fool