A few weeks ago, I wrote Why You SHOULD Try to Time the Market. It’s a very contrarian view because the math shows you’ll still make money if you stay in the market long enough. However, I wasn’t advocating exiting the market. Instead I suggested that you rebalance your portfolio by looking at cheaper international and emerging markets, increasing your bond allocation, and perhaps even holding a little more cash (which may require exiting the market to very, very small degree.)
The main reason why I think one should consider exiting the market is because the Shiller P/E is historically high… so high that a historic crash came in the next couple of years.
I like to take a small part of my portfolio and pick individual stocks. I know that the math says that indexing does better over the long haul. Here’s are some reasons why I think it is okay to pick stocks:
- It is a very, very small part… so small that if all my stocks went to zero it would be fine. I wouldn’t be happy, but it wouldn’t fundamentally change our lifestyle.
- It gives me some feeling of control over my investments. The S&P 500 is going to do what it does. Even these companies will do what they do, but buying an asset low and selling it high has never failed for me ;-).
- By playing in my own little small sandbox, I’m not tempted to touch the big parts of my portfolio that would be life changing to lose.
And sometimes, you can Get Free Stock from Robinhood. In fact, I got a free share of stock of one of the companies that I’m going to write about today.
So let’s dig in:
Five “Bargain” Stocks to Consider Buying Now
Before I get started, I want to put some disclosures out there. I’m not writing about these in any particular order. When I actually own a stock, I will disclose it. I may consider buying these in the next 72 hours, but I would likely invest less than $3000 total and these are big billion dollar companies. My readership is not large enough to impact the stock price of these companies. Prices of the stocks are of accurate as of around midday of 8/22/2017.
Under Armour Inc (NYSE:UAA) – Price: $16.68
Why it’s Cheap
I’ll be open, I haven’t really studied the company in great depth. I noticed a few big drops from what appear to be earnings misses and lowering guidance. It’s no secret that retail sales are terrible. Malls aren’t what they used to be. Blame Amazon or consumers finally figuring out you shouldn’t pay for fashion. It’s not just Under Armour as FootLocker got hit hard last week for poor sales. Since FootLocker sells Under Armour, it’s not a great sign that Under Armour is turning it around.
Why I like it
In April, 2016 Under Armour traded at $80 a share. In 2015, it was $100 a share. Would you rather pay around $17, $80, or $100 for a share of a company? At $17 it is a $7 billion company. Some people thought it was a good idea to invest in it when it was a $40 billion company.
This is a chance to get a great brand that has already been punished. In a world of very, very high valuations that may be due for a crash, I’ll take the brand that has already crashed as it doesn’t have as far to fall.
IBM (NYSE:IBM) – Price: $140.50
Why it’s Cheap
IBM has been selling off its hardware businesses for years and investing in software. It’s been a long process since it is a big company. They are competing in the cloud/services/AI space with other big companies like Google, Amazon, and Microsoft.
The long transition has meant that revenues haven’t been growing. In fact, they’ve been shrinking every quarter for years.
Why I like it
At a 11.67 price/earnings ratio it’s a very cheap tech company. The dividend yield is a very high 4.27%. The rest of the market could crash by 50% and IBM would still look like it’s valued cheap. In the meantime, why not enjoy the 4% dividends? By the way, I do own IBM and I have owned it for years.
Chipotle Mexican Grill (NYSE:CMG) – Price: $307
Why it’s Cheap
If you’ve been following the news over the last couple of years, you’ve heard about the health violationns at some of its restuarants. It’s at the point where a hint of a health problem seems to cause shockwaves in the stock.
Why I like it
I like for the same reasons that I liked Under Armour. It was $725 in late 2015. I thought that it was worth buying at $368. After I wrote that article it went up to around $490 earlier this year. That would have been a nice gain in just a few months, right?
Now everyone has another chance, but this time it’s only $307. In some ways, it is also the opposite of Under Armour. I love the Under Armour brand, but don’t like the retail industry. I love the fast casual dining restaurant business at certain valuations, but Chipotle needs to work on its brand.
Finally, the company is worth around $8.7 billion dollars while the valuation was $20 billion not too long ago. Like the general theme here, I think it is more likely they’ll go up from here and drop minimally if there is a market crash.
Update: While I wrote this article on the 22nd for publishing on the 24th, I decided to buy 6 (yes six!) shares of CMG at nearly exactly $300 as it continued to drop on the 23rd.
Snap (NYSE:SNAP) – Price $14.00
Why it’s Cheap
It was around $11.50 when I had the idea to write this article. It’s now already recovered to $14. So it’s not as cheap. However, it’s still less than half of its IPO price. That IPO price might have been inflated, but this is a chance to buy Snapchat almost as cheap as anyone has been able to.
Why I like it
I’m not sure that I do. I’m not a Snapchat user, and I don’t really feel like I grasp the business model. I do own a single share of this company via the Robinhood promotion that I mentioned above.
I suppose one reason to like it is that it seems that teenagers are moving from Facebook to Snapchat. That’s not enough for me to make the move without knowing more about it.
Instead I’d rather own…
Twitter (NYSE:TWTR) – Price $16.89
Why it’s Cheap
Lack of user growth. Analysts want to see Twitter compete with Facebook and it just isn’t happening. They also see that Google and Facebook are getting the vast bulk of online advertising dollars. Twitter is fighting for the scraps. (I shudder to think where that puts me!)
Why I like it
It’s hard to find household tech company names that are worth around $12 billion dollars. There’s a lot of free advertisement from The President of the United States to celebrities. Even TV shows use hashtags. The company has a TON of spare cash and I think they could cut the costs of operations significantly (unlike Netflix, they don’t need to license/create content).
Summing it up
At the end of the day, there’s a reason why all these stocks are well off their highs. Most of these companies have seen their profits drop. Others haven’t been executing. That’s why I put “Bargain” in quotes in the title. I’ve always been a fan of buying low, holding, and selling higher.
Of course there’s always a danger that the companies could go lower. However, in what seems to be an overprice market, I think they less room to fall.
I bought a few shares of IBM stock long ago and it’s up many hundreds of percent. I wish I had sold everything I owned and bought as much as I could instead of ending with $20k profit. Of course, right after I bought it, it dropped about 50%. My broker tried hard to get me to sell my IBM during the dot com bubble, to buy stock in companies that no longer exist.
That being said, I deal closely with IBM, and other than their name nothing is the same. The book “The Decline and Fall of IBM: End of an American Icon?” is very true, they have gutted a lot of industry leaders that worked for them, sending as much work offshore to questionable support. I see this story today: http://www.business-standard.com/article/companies/suresh-vaswani-set-to-drive-ibm-s-global-tech-services-117072800088_1.html
I worked for Suresh and he almost ruined the company I worked for. He has one answer to any question: India. Even if you can hire better, cheaper people elsewhere his answer is the same. He is a very dishonest person, and I’m scared for what he will do to their services business.
Yikes, I don’t like the sounds of that, Bob. Sometimes I like to view investing in stocks/companies like sausage, I don’t really want see how it is made.