The stock exchange continues among the best bull runs in memory. And for numerous reasons, the market has also been “expensive” by more than 1 evaluation measure for quite some time. While this does not guarantee any kind of correction or crash is imminent — the market has been expensive for a couple of decades you may be looking.
With that in mind, we decided to take a deeper look for value. Three of our investors identifiedÂ StarbucksÂ (NASDAQ: SBUX),Â International Business MachinesÂ (NYSE: IBM), andÂ Micron TechnologyÂ (NASDAQ: MU) rather than trading for a solid value at current rates, but also worth buying. Keep reading to learn why they made the cut for all these three successful investors.
Starbucks is cheapÂ
Jason HallÂ (Starbucks): Trading for under 17 times forward earnings, Starbucks is as economical as it’s been in a very long time. And for good reason, because the coffee giant has struggled to keep on growing sales in its massive U.S. business over the past year. These struggles caused the company’sÂ Â Â decreasing its very own long-term expectations, dropping same-restaurant sales — also known as comps — growth guidance to 3%-5% on a combined company after years of steadily delivering 5 percent-and comps growth.Â Â Simply speaking, it is because Starbucks can’t count on its own U.S. company delivering 5 percent or better comps foundation going forward. Over the past year, it’s been around 2%-3%.Â Â And while that is a really good number for most retailers, the market has turned into unwilling to pay as much of a premium. As of the writing, Starbucks’ stock is down 13.3% from its all-time high.
However, I think the industry is currently ignoring a wonderful opportunity to invest in the upcoming big phase of Starbucks’ growth. This past year, the company took charge over its whole mainland China operations from a franchise partner, and now it controls its own destiny in what is likely to eventually turn into an even bigger market than the U.S. to the company. That is aÂ Â thing.
Coupled with its other growth drivers, such as Reserve and Roastery shops beverages, and meals, Starbucks’ prospects are as excellent as ever. In the current share price, you can buy that growth possible for a value.
Three letters are all you need
Dan CaplingerÂ (IBM): The tech market has been red-hot lately, but one player that has largely gotten the cold shoulder is IBM. After successfully pivoted from a heavy hardware focus from the 20th century to adopt the move toward software and solutions from the early 2000s, Big Blue nevertheless failed to keep up with the accelerated pace of innovation among leading technology giants. The result has been stagnant share-price functionality that places a valuation of just 12 times forward earnings on IBM stock.
IBM also offers a great deal of promise in the upcoming year. Most investors expect the company to go back after five decades of falling top-line performance to earnings growth. A few of those gains will come in the launch of new mainframe systems, beginning a new product cycle which should induce some gains. Yet the possibility comes from software like the Watson intelligence master, which might help revolutionize industries across the spectrum. For example, healthcare is a promising area for AI research, with care management, drug research, clinical trial logistics, and choice of available treatments for diseases posing opportunities for IBM to set its own technology to greater use.
IBM has lots of competition, therefore its success is far from assured. Yet at an attractive valuation, Big Blue provides a margin of security that is hard to find elsewhere in the technology sector.
Danny Vena (Micron Technology): Unless you’re a techie, you’ve probably never heard of Micron Technology. The semiconductor company is one of DRAM and NAND flash memory chips. Micron continues to be on a roll, with its share price up 87 percent in 2017.
Despite this rally, Micron still trades at a substantial discount to its industry peers. From a price-to-earnings perspective, the semiconductor industry sports a trailing-12-month multiple of 11 for the fourth quarter of 2017.Â Â Micron, on the other hand, is priced at just six times trailing earnings. Its forward multiple is even more appealing at just four days ahead earnings. So what’s causing this bearish take?
Boom or bust cycles and price wars in the business have given way and costs for the organization’s memory chips have soared. Investors have been reluctant to embrace this fact, fearing a return on the cycles of yesteryear.
Memory used in the Internet of Things, the areas of artificial intelligence, and cloud have driven demand for the company’s core chips.
These current technological revolutions have led to fortunes for the chipmaker.Â Â For Micron’s fiscal 2018 first quarter, the business reported revenue of $6.8 billion, an increase of 71% on the prior-year quarter, beating consensus estimates of $6.45 billion and Micron’s own prediction of $6.1 billion to $6.5 billion. Net earnings grew to $2.68 billion, up nearly 15 times year over year. Adjusted earnings of $2.45 per share beat consensus estimates of $2.20 per share and also beat Micron’s prediction of $2.09 to $2.23 per share.Â Â Shipments to both cloud and business clients jumped 50% year over year.
Get this chipmaker now — before the market embraces the new paradigm.