Three Great Value Stocks for 2016
For some companies, a bad year spells the doom of their business. JC Penny, for instance, never managed to recover from the Great Recession; their stock prices now trade for less than 10% of their value from a decade ago. Likewise, Barnes and Noble has been on a one-way trip down to the pink sheets since 2007, when Amazon released their Kindle e-reader and changed the book market forever. Not all companies are doomed to failure after a bad 2015, however. Indeed, the chances of resurgence make a select few value stocks excellent choices for investors who want to buy low and sell high.
You can be forgiven for likely never hearing about Magna International (MGA on the NYSE, trading for $35.72 a share) even if you use one of their products almost every day. The Canadian car parts manufacturer has a fantastic set of clients in GM, Ford, and Chrysler, enjoying a revenue stream of some thirty-six billion dollars per year selling everything from car seats to mirrors. As you may well imagine, their stock performance closely follows the performance of the Big 3 auto manufacturers, as well as Tesla, Volkswagen, Toyota, and BMW, who also purchase their parts. The 2015 auto industry may best be described as a mixed bag: while American auto manufacturers have more or less recouped their stock losses since the recession, none of the Big 3 had net gain on the market this year. Making matters worse for Magna, their Canadian operations proved a major hindrance this year: at the same time that the dollar positively smashed all competition, Canada faced a recession for the first time in a decade due to the declining price of oil. The Canadian dollar pulled ahead of the US dollar in 2012; it's now worth just seventy cents. With nearly one-third of all sales coming overseas, Magna suffered from currency disparity on top of the thorny relationship with the greenback. That's made their stock price fall to 52-week lows, but there's good reason to think the phoenix can rise from these ashes. For starters, most analysts believe the Canadian dollar can't sink much lower without buyers swooping in to pick up the loonie at cut-throat rates (and since Magna can't control currency rates anyway, it's not a sign of failure). Second, Magna's top line has grown through Q3 and Q4. That's put their P/E ratio below 8, making it a great value buy.
Bed Bath and Beyond
Fluffy towels and scented soaps ought to always be in vogue, right? Not so for 2015, where Bed Bath and Beyond (BBBY on the NYSE, trading for $46.87 a share) hit the skids to the tune of a 37% drop. As their name suggests, Bed Bath and Beyond makes their money at times when the housing market thrives; if you're the type to gawk at accidents on the freeway, go check how hard the company got it in November of 2008. While the state of the American homeowner is vastly improved since those days, with the net value of all property in the US having recovered back to 2007 prices, it's still less than ideal. With rising lending rates, most Americans are waiting to buy a home and fill it with brand-new merchandise. To make matters worse, BB+B relies too much on traditional marketing and sales, including the dying practices of paper coupons and in-store retail. The past Christmas season pushed a number of retailers into the black thanks to the ever-expanding market of online shopping, but not BB+B, who reaped just 10% of total sales from online customers (!) during 2015. While that last statistic should be enough to send any investor running, it actually represents a fantastic improvement. It's a 25% increase compared to 2014. What's more, BB+B's operating margins have fallen from nearly 17% to just 13%, indicating that the company knows how to increase their efficiency. While factors out of their control (i.e., the housing market) could boost the company's asking price, they're not sitting around waiting to see what happens. By expanding their sales to include beauty and food, while also snapping up private labels, the company wants to compete not just with Williams Sonoma and Pottery Barn but with the big box retailers. Valued at nine times forward earnings, Bed Bath and Beyond looks like it can come out on top in 2016.
Hewitt Packard Enterprises
One of the interesting by-products of the 2016 presidential race is getting an insight into the goings of Hewitt Packard (HPE on the NYSE, trading for $13.70 a share) thanks to former CEO Carly Fiorina's stake in the Republican candidacy. You'd get the sense they were incompetent with her, given that the stock fell under her tenure and recovered when she got the axe. Whether you'd vote for Fiorina or not (and given the latest polls, odds are good you won't) there's one important thing to consider about HPE: they've seen the light of cloud computing and have chosen to change the dynamic of the company. Hewitt Packard spun the HPE division off from their main computer-and-printer industry, the latter of which is struggling to compete against almost all opposition on the market. Their cloud-based Enterprises division, however, has lots going for it. With two quarters of year-over-year growth and a new business deal with Microsoft, HPE is looking like a fantastic growth opportunity during 2016. Given that their stock is at a historic low -- not difficult, since it's only been on the market for the past three months -- and the forward-looking price-earnings comes in at a comfortable 7.7, HPE in 2016 could be similar to SalesForce in 2015: the little cloud company that could. While HPE needs to leapfrog a number of companies in front of them to gather a customer base, they have a number of strengths on their side, including name recognition and one of the best support teams in the entire tech business.