Value investors will tell you that the best time to buy stocks is when there’s blood in the streets. When the market is so overrun with panic that it offers discounts on strong businesses, that’s when the smartest value investors swoop in to buy.
It wasn’t that long ago, for instance, that Warren Buffett, arguably the greatest value investor of our times, was criticized for having too much cash. With the market in sharp decline recently because of coronavirus fears, it wouldn’t surprise me to learn that Buffett is getting ready to deploy some of that cash to pick up businesses for a cheap price.
While you and I don’t have Buffett’s billions in extra cash lying around, the market’s declines may be offering opportunities for our more modest nest eggs. Here are three ideas for your consideration on where to potentially invest $10,000 right now.
A credit card issuer whose bad news is well priced into its shares
Synchrony Financial (NYSE: SYF) is a leading issuer of retailer credit cards. Its shares have dropped recently. One key reason is that it’s now working through the tough year-over-year comparable periods following the loss of its contract with Walmart . Like much of the rest of the market, its shares are down even more since mid-February, apparently on the fears that the coronavirus outbreak will seriously crush consumer spending.
Looking past any legitimate near-term fear the market may have, analysts expect Synchrony Financial to earn around $4.58 per share in 2021. At a recent market price of $28.25, that prices the company at around 6 times those anticipated earnings. And even with the loss of the Walmart contract, Synchrony Financial is expected to be able to grow those earnings at a decent clip over the next five years.
Investors willing to wait for the market to recover get rewarded for their patience with a dividend yield of around 3%. With that dividend representing around 15% of the company’s trailing earnings, it should be straightforward for the company to maintain it even if the near term does become a bit rocky.
An insurer with the strength to power through
Like many insurers, Unum (NYSE: UNM) has seen its shares fall recently, probably on concerns that the coronavirus outbreak will lead to higher than forecast claims among its policyholders. Yet assuming the company can make it through any spike in claims in 2020, analysts are estimating that it will earn $6.20 per share in 2021. At a recent price of $20.65 per share, that prices Unum at barely more than 3 times those anticipated earnings.
If Unum does see a spike in claims, it will probably be able to raise its rates on new policies to help cover those costs over time. As a result, the key question is whether the company has the financial strength to power through a near-term spike.
On that front, it looks well prepared. It has over $47 billion in bonds on its balance sheet, out of a total of $55 billion in investment assets. Unum also has a current ratio around 7.6, meaning it has enough in current assets to pay off its expected near-term liabilities with plenty of room to spare.
Investors also get a dividend yield just above 5%, and that yield represents only around 20% of the company’s earnings. That provides reason to believe the dividend can be maintained unless things get so bad that the performance of our investments becomes among the least of our worries. While insurance may not be the fastest-growing industry to invest in, the combination of a low price and a high, well-covered yield may provide decent returns for those patient enough to wait for a recovery.
An energy company less tethered to oil prices than you may think
Phillips 66 (NYSE: PHX) is a midstream and downstream energy company, perhaps best known to the public for its gas station brands. The company engages in energy refining, transportation, marketing, and chemicals processing, all of which typically use oil as a key ingredient. As oil has dropped while coronavirus fears have added to worries of less energy demand, so have Phillips 66’s shares. The thing is, though, that while oil is a major ingredient to Phillips 66’s business, it’s not where it makes its money.
Phillips 66 makes its money processing and moving energy around, not from digging it out of the ground. As a result, its operations are less tethered to the price of oil than they might seem on the surface. That makes it likely that the company will be able to withstand the recent drop in the price of oil and emerge well positioned for the future.
Speaking of that future, analysts expect Phillips 66 to earn around $9.69 per share in 2021. At a recent market price of $69.30, that prices the business at just over 7 times those anticipated earnings. Investors also receive a dividend yield of around 5%, which represents just over half of those earnings.
Even if the company does face some short-term disruption from lowered demand for oil, it has the balance sheet to see its way through. Phillips 66 has a debt-to-equity ratio just below 0.5 and a current ratio above 1.2, which means it doesn’t appear to be overleveraged and that it can cover its near-term expected obligations.
Your chance to buy solid companies at decent prices because of the market’s fear
The market’s decline has reached the point at which you can buy some legitimately solid businesses at reasonable bargains. That means value investors may start to take notice and start buying shares. While the market’s fears can always drive stocks lower, investors with patience and a long-term time horizon may find that these three companies already offer good enough value to consider buying now.
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