Ten Really Great Underpriced Stocks to Consider Buying Right Now

As an old-school value investor, I see market corrections as opportunities to buy great stocks at low prices. I subscribe to the motto that “when the bears start running, smart investors go shopping.”

Even though the current correction seems to be short lived, I expect we’ll so more price crashes as the problems in China bring certain stocks down to Earth; some great stocks are trading at low prices out there. Here is a list of 10 stocks that I think are trading at bargain prices. If you have a little extra cash, you might consider buying at least some of them:

1. Apple Inc. (NASDAQ: AAPL) – Seriously, what is not to like about this company? It reported a TTM revenue of $225.34 billion that was growing at a rate of 32.52% on June 30, 2015. Apple also reported a diluted EPS of 8.658, a net income of $50.74 billion, a profit margin of 21.52%, a free cash flow of $12.9 billion and a return on equity of 41.55%! To add icing to the cake, it appears to be undervalued; on August 28 Apple had a market cap of $646.06 billion and an enterprise value of $665.78 billion. It is also a tech stock that pays a dividend of 1.75% and has a forward dividend yield of 1.84%. At $113.29 a share, this stock is cheap, cheap, cheap. I like it, and I do not own a single Apple device.

 

2. Kroger (NYSE: KR) – The nation’s largest and most successful grocer is also an overlooked retail giant. With a TTM revenue of $108.56 billion, it is actually larger than com Inc. (NASDAQ: AMZN), Target (NYSE: TGT) or Walgreen (NASDAQ: WBA). Yet it was trading at a bargain basement price of $34.94 a share on August 28, 2015, because of a recent stock split. Kroger reported some mixed numbers that make it more of a bargain, on April 30, 2015, including: a revenue growth rate of .27%, a diluted EPS (earnings per share) of 1.864, a net income of $1.846 billion, a profit margin of 1.87%, a dividend yield of 1.08%, a forward dividend yield of 1.09%, a free cash flow of $876 million and a return on equity of 35.45%. Kroger is significantly undervalued; it had a market cap of $33.94 billion and an enterprise value of $44.98 billion on August 28, 2015.

 

3. Walmart Stores Inc. (NYSE: WMT) – If there’s a better example of a classic value investment out there, I cannot find it. Here is a company that reported a TTM revenue of $485.62 billion on July 31, 2015, yet its shares were trading at $64.94 on August 28, 2015. I like this company because it keeps making lots and lots of money despite sagging sales growth. If you do not believe me, take a look at the numbers Walmart posted on July 31, 2015: a diluted EPS of 4.791, a net income of $15.49 billion, a profit margin of 2.89%, a dividend yield of 3%, a forward dividend yield of 3.02%, a payout ratio of 44.81%, a free cash flow of $2.815 billion and a return on equity of 19.68%. Walmart is also significantly undervalued; it had a market cap of $208.14 billion and an enterprise value of $250.97 billion on August 28, 2015. Personally, I think Walmart is poised for higher profits because of lower prices on Chinese imports created by a devalued yuan. I also think Walmart is capable of large-scale expansion in online retail and small box retail in the United States in the next few years, which could lead to significant revenue growth at some point.

 

4. Kansas City Southern (NYSE: KSU) – My favorite railroad is undervalued, trading at $95.58 a share on August 28, 2015, but it still reported some good really numbers on June 30, 2015, including a TTM revenue of $2.509 billion, an EPS of 4.446, a net income of $491.7 million, a profit margin of 19.08%, a dividend yield of 1.29%, a forward dividend yield of 1.4%, a payout ratio of 26.3%, a free cash flow of $45.2 million and a return on equity of 13.2%. I like Kansas City Southern because of its operations in Mexico and access to Mexican ports. The KSC is one of three U.S. railroads that has a direct connection to a Pacific port at Larazo Cardenas with a direct connection to America’s industrial heartland in the Midwest. If that was not enough, the Kansas City runs right through Mexico’s industrial heartland at a time when Mexico is poised to grow. That is intriguing because as Citibank analyst Steven Englander recently pointed out, the value of Mexico’s non-oil exports to the USA now exceeds those of Canada. Englander thinks Mexico’s cheaper production and growing manufacturing capabilities and expertise will make it an industrial powerhouse. No company is better poised to take advantage of this than the Kansas City Southern.

 

5. PayPal Holdings (NYSE: PYPL) – If you want to take a gamble on a tech company that could be the next Google, PayPal could be it. PayPal’s revenue was growing at a rate of 14% in the first quarter of 2015. PayPal’s international revenue grew at a rate of 52% in 2014, the volume of mobile payments it processed grew by 58% and its total payment volume grew by 26%. That translated into a lot of cash in 2014. PayPal processed four billion payments worth $235 billion and one billion mobile payments worth $46 billion. The number of payments it processed grew at a rate of 22%; the number of active PayPal accounts grew by 11%, and the number of payments per account grew by 9%. PayPal’s subsidiaries are growing too; the number of cards on file at Braintree grew by 128%, and the volume of payments processed by Venmo grew at a staggering rate of 299%. PayPal could grow into a payment platform that rivals Visa or MasterCard, and at $35.04 a share on August 28, it definitely seems underpriced because it seems poised for growth. Among other things, PayPal seems to have a talent for spotting impressive acquisition targets such as Braintree and Xoom. Expect PayPal’s shares to zoom up in price when it starts reporting financial numbers.

 

6. Procter & Gamble (NYSE: PG) – This one is another classic value buy. It is a good company that makes a lot of money in an unsexy business—consumer products, mostly laundry detergent. Among other things, P&G owns the U.S. laundry detergent market with Tide. Procter & Gamble reported some tremendous numbers on June 30, 2015, including a TTM revenue of $76.88 billion, a diluted EPS of 2.351, a net income of $7.036 billion, a profit margin of 2.93%, a dividend yield of 3.67%, a forward dividend yield of 3.72%, a payout ratio of 103.6%, a free cash flow of $2.714 billion and a return on equity of 11.03%. P&G also had a market cap of $193.16 billion and an enterprise value of $213.61 billion on August 28. Despite declining revenue, Proctor and Gamble looks like a profitable company that will continue to make money for a long time to come.

 

7. American Express (NYSE: AXP) – American Express reminds me a lot of Walmart; it is a really good and highly profitable company that has suffered a lot of setbacks recently, yet it makes a lot of money. On June 30, 2015, Amex reported some impressive financial numbers, including a TTM revenue of $33.67 billion, a diluted EPS of 5.701, a net income of $5.922 billion, a profit margin of 17.78%, a dividend yield of 1.4%, a forward dividend yield of 18.32%, a free cash flow of 1.894 billion and a return on equity of 28.25%. As you can see, American Express makes a lot of money for itself and investors, and it did it with a revenue growth rate of -4.02%. Amex is still making a lot of money in credit cards and will do so for a long time to come. Even with the loss of arrangements with Costco and JetBlue, this is a very good company. It is also in a growth industry payment processing, which is expanding because of new alternatives such as PayPal and Apple Pay—even if the market for its primary product, credit cards, is shrinking.

 

1. Walt Disney (NYSE: DIS) – I view Disney like I do Apple; I don’t necessarily like its products, and as a Marvel and Star Wars fan, I cringe at the thought of Captain America and Darth Vader standing next to Mickey Mouse, yet I think Disney is a good investment. Disney reported some really good numbers on June 30, 2015, including a TTM revenue of $51.34 billion, a revenue growth rate of 5.09%, a diluted EPS of 4.814, a net income of $8.272 billion, a profit margin of 18.95%, a dividend yield of 1.77%, a forward dividend yield of 1.29%, a free cash flow of $1.652 billion and a return on equity of 18.2%. Disney is a really great company because it actually makes money in show business. It is also undervalued; it had a market cap of $172.97 billion and an enterprise value of $187.76 billion on August 28, 2015. I also think Disney is poised for growth because entertainment is booming thanks to modern electronics. It also knows how to make acquisitions, as the Star Wars and Marvel deals prove. Since the number of such entertainment franchises out there is limited, Disney is in a very enviable position to make a lot more money in the future.

 

9. Capital One Financial (NYSE: COF) – Okay, I know this list is heavy on financials, but financials are undervalued right now. They are also underappreciated, which makes them a real value. Forget the silly ads in which movie stars make fools of themselves; Capital One makes a lot of money. On June 30, 2015, Capital One reported some impressive financial numbers, including a TTM revenue of $22.77 billion, a revenue growth rate of 3.73%, a diluted EPS of 7.093, a net income of $4.096 billion, a profit margin of 15.22%, a dividend yield of 1.81%, a forward dividend yield of 2.07%, a free cash flow of $2.279 billion and a return on equity of 9.09%. Capital One also has a growing business; it captured Costco’s lucrative Canadian business from American Express earlier this year for example. Capital One is also significantly undervalued; it had a market cap of $41.94 billion and an enterprise value of $78.66 billion on August 28.

 

10. Big Lots (NYSE: BIG) – I am not that fond of dollar stores, because I think that they are expanding too fast for the limited market and narrow margins. Yet there is one that seems to have avoided the trap of mindless expansion and empire building acquisition: the close-out operator Big Lots, which operates around 1,460 stores in 48 states and the District of Columbia, which is actually down from last year when the chain operated 1,493 locations. In contrast, Dollar General (NYSE: DG) operates 12,000 stores and plans to open over 700 more by the end of 2015. Despite the shrinking footprint, or because of it, Big Lots manages to make money and even pay a dividend in the small box retail sector, which is astounding. On June 30, 2015, Big Lots reported a TTM revenue of $5.176 billion, an EPS of 2.664, a net income of $143.14 million, a profit margin of 2.52%, a dividend yield of 1.48%, a forward dividend yield of 1.56%, a payout ratio of 26.56%, a free cash flow of $48.2 million and a return on equity of 18.09%. I like Big Lots because it is avoiding the risk of over expansion, which should put it in a good position for slow and steady growth if the economy really picks up.

As you can see, there are a lot of really good stocks out there right now. Some sectors, including retail, railroads, consumer products and financials, seem to be undervalued. That means there are some great values out there that might get cheaper if the market correction continues.

Disclosure: I hold shares of both Kroger and PayPal and I’m long on them because they are really good stocks.