Sometimes, stocks are a bargain because the company’s prospects are being overlooked, and sometimes, it’s just the result of a broader market swing like we’re experiencing right now. There are also companies that are cheap because of elevated risk…
Costco Wholesale (NASDAQ:COST), Nucor (NYSE:NUE), and TPG Pace Beneficial Finance (NYSE:TPGY) each look like cheap stocks right now. They come with different levels of risk but offer investors a diversified mix that every portfolio should have.
Let’s take a closer look at what many consider to be three absurdly cheap stocks at the moment.
1. Costco: A deal for shoppers
Costco has long been a reliable destination for shoppers and investors alike. Now is a good time to shop for some Costco shares, too. The stock generated a total return of 28% in 2020 as the essential business benefited from pandemic shopping. The company that’s known for treating its employees well also rewarded investors with a $10 per-share special dividend, which was paid to shareholders in December 2020.
But Costco shares are giving another gift to investors right now. Share prices have retreated more than 16% so far in 2021, bringing the stock to a valuation that’s based on a price-to-earnings (P/E) ratio last seen in June 2019. In that time, the company’s revenue has increased almost 20%.
Bottom-line earnings have also grown in that time. Earnings before interest, taxes, depreciation, and amortization (EBITDA) is up slightly less than revenue, as the company has increased spending during the pandemic with added safety and cleaning protocols and $246 million in what the company called “COVID-19 premium wages” during its recent fourth-quarter and full-year 2020 earnings call. As those added costs dissipate, even more of its growing revenue should make it to the company’s bottom line.
2. Nucor: A surprise performance update
Nucor is in the cyclical steel sector, and the P/E ratio isn’t always the best measure of value, depending on where we are in the economic cycle. But at a given point in time, a drastic difference between current and forward P/E can provide insight into what’s coming.
Based on 2020 earnings, Nucor stock is currently trading at a P/E of about 28. The company had a good year in 2020, even with pandemic impacts such as automotive-customer temporary plant shutdowns. That P/E doesn’t sound cheap at first glance, but the company followed up its latest earnings report with a surprise business update on Feb. 9.
Nucor felt the need to provide the unusual update due to “positive economic trends and the robust demand we are seeing across our markets,” Nucor CEO Leon Topalian said in a statement. He added that the company expects to “significantly exceed Nucor’s previous record for quarterly net earnings, set in 2008.”
Pent up demand in the automotive market, ongoing strength in housing and appliance demand, and growing renewable energy and data center construction are contributing to the outsized demand environment.
Since that company update, share prices have…
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