With the markets approaching 52-week highs, one is likely to think that all stocks are doing well. However, that’s not the case. Some value stocks to buy are languishing, presenting compelling opportunities.
Although some market participants argue that markets are rational, price movements tell a different picture. Markets are often irrational, ruled by emotions such as greed and fear. Greed causes bubbles as investors are caught up in the fear of missing out. On the other hand, fear causes extremely mispriced securities that are undervalued.
This article highlights three value stocks to buy where fear has taken over. Investors have dumped these stocks and left them for dead. Although these stocks have had challenges, they have robust businesses that generate significant cash flow.
The pendulum has swung too far on the pessimistic side and these stocks could snap back violently. Today, they trade at significant discounts to the market and positive developments could push the stocks higher.
Warner Brothers Discovery (WBD)
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Streaming wars and the decline of linear TV have been a headwind for Warner Brothers Discovery (NASDAQ:WBD). Furthermore, its huge debt load and uncertainty related to NBA rights have left investors with a sour taste in their mouths.
Despite these headwinds, WBD stock is one of the value stocks to buy. First, the company still owns some of the best entertainment and media assets. It owns Warner Bros. studios, one of the best television and film companies with top productions like DC Comics. Other top brands in the portfolio include the Food Network, CNN, Discovery and HGTV.
Moreover, its the fourth largest streaming service with 99.6 million subscribers at the end of Q1 of 2024. Another pillar of strength is Warner Bros. Pictures, one of the best studios in recent years. This leading performance continues as it became the first studio to surpass $1 billion in global box office in 2024.
Lastly, Chief Executive Officer (CEO) David Zaslav is spearheading efforts to reduce the $43.2 billion debt load. The company has slashed costs to boost profitability. In Q1 of 2024, free cash flow increased by 1.3 billion year-over-year (YOY) to $390 million and the streaming business generated $90 million in positive EBITDA. With streaming profitability improving, WBD stock offers a compelling opportunity.
PayPal (PYPL)
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PayPal (NASDAQ:PYPL) is the ultimate financial super app offering e-commerce payments, checking and savings accounts, credit cards, peer-to-peer transfers, consumer loans and buy now pay later. Considering the secular shift from cash to digital payments, it’s one of the value stocks to buy. PYPL stock deserves a higher multiple, yet it is trading at 16 times forward EPS, a 20% discount to the S&P 500.
One of the best ways to measure PayPal’s growth is total payment volume. In 2023, the metric grew by 13% and increased by 14% in Q1 of 2024. So, PayPal is still delivering impressive growth. In fact, Q1 of 2024 results were strong across the board.
Revenues grew from $7 billion to $7.699 billion, a 9% growth rate. GAAP net income rose 12% to $888 million, driving GAAP EPS expansion from $0.70 in the prior year quarter to $0.83. Furthermore, the company continued its operating margin expansion efforts, especially at Braintree, with a 98-basis point improvement.
As management meets growth and margin targets, sentiment on PYPL stock will turn. Besides, management is repurchasing stock at these cheap levels, having bought back 81 million shares for $5.1 billion over the past 12 months.
Albemarle (ALB)
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Even the best-in-breed stocks sometimes fall out of favor. That’s why this dividend aristocrat is one of the top value stocks to buy. Twenty-nine consecutive years of dividend growth underline Albemarle’s (NYSE:ALB) quality and consistent growth.
Over the past year, a steep decline in lithium prices has caused a sharp selloff in ALB stock. The company is one of the world’s largest lithium producers, so its fall is not surprising.
However, looking past the recent declines, the long-term outlook is rosy. Lithium is one of the main materials used in batteries for electric vehicles (EVs). Therefore, demand will grow over decades as EVs gradually replace internal combustion engine vehicles.
In the U.S. alone, Fastmarkets expects demand to grow 500% by 2030. This means Albemarle, which owns one of the lowest-cost sources of lithium in Chile, will benefit. In response to soaring demand from the EV industry, it plans to increase refining capacity in China and the U.S. As a result, management expects to double lithium sales by 2030 from current levels.
Demand for lithium will only grow from current levels. Furthermore, prices will recover from current depressed levels. Therefore, Albemarle is among the best value stocks to buy in the basic materials sector. It pays a 1.23% dividend that’s worthwhile before a recovery happens.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
