The is down about 10% since mid-July, and the markets just had their worst day in two years. While such volatility can be painful, it creates good buying opportunities for value stocks, or stocks that are undervalued relative to their underlying earnings potential.
While markets have bounced back a bit from their recent lows, many large cap growth stocks, in particular, are still overvalued, as they have been running hot for almost two years.
So, this is potentially a great time to find good value stocks or growth stocks that are undervalued. Here are 4 of the best values right now.
1. PayPal
PayPal Holdings Inc (NASDAQ:) stock has been on the decline for three years now after it spiked to ridiculous heights after the pandemic. PayPal stock has been falling ever since, due to several issues, that led to executive changes last year and a slow and steady rebuild.
PayPal, under new CEO Alex Chriss, has refocused on its bread-and-butter, payments, cut costs, reinvested in its core strengths, and strengthened its balance sheet.
Its stock price is down to $63 per share, from highs of over $300 per share in 2021, and its P/E ratio is a dirt cheap 15, which is close to an all-time low.
PayPal recently increased its revenue and earnings in fiscal 2024, and analysts have a median one-year price target of $77 per share, which would be a 20% increase over the current price.
To be fair, Meta Platforms Inc (NASDAQ:) is not a value stock, but I think it is undervalued relative to its earnings potential. The company that owns Facebook and Instagram, among other social media properties, has seen its stock rise 48% this year and 68% over the past year, but it is still trading at a relatively low valuation, with a P/E ratio of 26.
It is not quite the value it was when the market tanked in 2022 and it was trading at 12 times earnings, but a P/E of 26, which is down from 35 a year ago, and below the Nasdaq average, is a good deal. This is especially true for a stock like Meta, which grew all of its key metrics last quarter and is investing heavily in AI to build on its status as the dominant player in social media and a leader within AI.
Meta has a median price target of $575 per share, which is about 12% higher than its current price. The next year will feature sizable investments in AI and Reality Labs, so growth could be muted, but to get Meta stock at a still low valuation is too good to pass up.
3. Alphabet
Similar to Meta, Alphabet Inc (NASDAQ:) is not what one would typically consider a value stock, but it is extremely cheap for a stock of its caliber. Alphabet, which owns Google, YouTube, and is the third largest cloud computing provider, is coming off a strong quarter where its cloud revenue grew 29% and it gained market share.
Alphabet’s stock price has fallen in recent weeks, in part due to the larger correction going on among large-cap growth stocks, but also because it lost an antitrust suit filed by the federal government. The suit alleged that Alphabet has a monopoly in search and the ruling will likely come with conditions and potentially fines. But Alphabet will certainly appeal, and it could drag on for years. Ultimately, it could hurt Google’s market share in search down the road, but then again, it is such a dominant player, it may not have that big an impact.
It is impossible to know the potential impacts now. However, if they come at all, it will be years away, so for now, you can get Alphabet pretty cheap. It has a P/E ratio of just 23, which is historically low for the stock, and a median price target of $205 per share, which is 25% higher than the current price.
4. Citigroup
Citigroup Inc (NYSE:), the fourth largest bank in the U.S., is a true value stock. It has a forward P/E ratio of just 10 and a price-to-book value of 0.58. A P/B ratio below one is often a definitive measure of a value stock, as its price is below its intrinsic value as measured by its assets on the books, or book value.
Another sign of a value stock is the P/E-to-growth, or PEG, ratio. Citigroup has a PEG ratio of 0.94, which means, with a score below 1, it is trading below what its expected earnings are for the next five years.
Among the big four U.S. banks, Citigroup has struggled more than any, with a -3% annualized return over the past five years. It has had issues with internal controls, has been handed massive fines by federal regulators, and had management turnover, among some of the issues. But the current CEO, Jane Fraser, has the bank headed in the right direction with moves to streamline costs and refocus assets in growth areas.
Citigroup stock is up about 9% YTD, and it has a median price target of $71.50, which is 24% higher than the current price. It also has a great divided with a high yield of 3.87%.
Whether they are true value stocks or undervalued growth stocks, each of these four stocks look like good bargains in this period of market turmoil.
