7 shares sold at a discount, end of January

Nowadays, it is not really popular to sell shares at a discount, i.e. the so-called value investment approach. Instead, interest is mostly on momentum.

This approach is mostly … well … crazy! The phenomenon of Reddit investors has stormed Wall Street – and even threatened the stability of billion-dollar hedge funds.

These investors have targeted heavily shorted stocks to increase epic distress. As a result, there have been large increases with companies such as GameStop (NYSE:GME), AMC Entertainment Holdings (NYSE:AMC), Koss (NASDAQ:KOSS) en BlackBerry (NYSE:BB).

But whenever this speculation is, the markets are likely to peak. And if this is the case this time around, investors want to look at value games.

So, who looks interesting now? Let’s look at seven otherwise well-known names:

• IBM (NYSE:IBM)
• Morgan Stanley (NYSE:MS)
• Oracle (NYSE: ORCL)
• Ameriprise Financial (NYSE:AMP)
• Cisco systems (NASDAQ:CSCO)
• Verizon Communications (NYSE:VZ)
• Lockheed Martin (NYSE:LMT)

Supplies Sold at Discount: IBM (IBM)

The past few years have led to strong profits from old technology companies such as appeal (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) en Adobe (NASDAQ:ADBE). But some were left behind. The one is IBM.

IBM shares peaked at $ 180 in February 2017 and were nowhere near in the intervening four years. Shares are trading at less than $ 120 a share, bringing the current market capitalization to about $ 106 billion.

The main reason for this? It’s really simple: revenue has dropped. In fact, the latest earnings report was another case in point, with revenue ranging from about 6% to $ 20.4 billion.

OK, in light of this, why might it be a good idea for investors to consider IBM shares? There are several reasons. First, IBM plans to eliminate its managed infrastructure services business, which could help streamline operations. Subsequently, the company made daring acquisitions – as for Red Hat – to revamp its technological product range.

Then there is the R&D capability. The company has invested heavily in key areas such as artificial intelligence (AI), the hybrid cloud and quantum computing.

As for IBM shares, it sells at a reasonable valuation. The price-to-earnings ratio is 10.8x. The dividend yield is also 5.43%, which is one of the highest in the technology industry.

Morgan Stanley (NYSE: MS)

Since the end of October, Morgan Stanley has been in rally mode. Shares rose from $ 48 to $ 68.

MS shares are still trading at a discount. Consider that the forward-price-earnings ratio is only about 12.08x.

This is quite in light of the potential growth opportunities. With interest rates at the bottom level and the booming market for IPOs and SPACs (special purpose acquisition companies), the environment is quite favorable.

During the last quarter, earnings increased by 51% to $ 3.39 billion, or $ 1.81 per share, and revenue increased by 26% to $ 13.64 billion. There was strength in all the ventures.

The biggest highlight, however, was the investment banking division. Revenue rose 46% to $ 2.30 billion. About $ 1 billion comes from equities.

It is true that IPOs can be awkward. But the momentum is mostly strong – and it should be a good source of growth in the new year.

Morgan Stanley was also aggressive with M&A. For this purpose, the company acquired E * TRADE and Eaton Vance. There will not only be cost synergies, but also an increase in the top line.

The company is also increasing its buybacks for MS shares. The most recent authorization is up to $ 10 billion.

Oracle (ORCL)

Oracle was lagging behind in the move to the cloud, which was definitely a setback on ORCL shares. But over the past few years, the company has transferred its various platforms. And yes, that should be the key to getting Oracle back on the growth path.

The components for the cloud story include NetSuite, which is a fast-growing enterprise resource planning (ERP) system, Fusion (middleware technologies) and Gen2 (for infrastructure). These platforms have seen good growth period – and have good long-term prospects.

What about the core database business? Yes, it came under pressure from startup like MongoDB (NASDAQ:MDB). But Oracle has made significant progress. At the heart of this is the autonomous database.

Oracle CTO and co-founder Larry Ellison said in the latest earnings call: “This is definitely the first cloud. This is the only database that really does both transaction processing and query processing. Query processing was therefore much faster than Snowflake, the current favorite market. And in transaction processing we are much faster than anyone. ‘

Meanwhile, ORCL shares are trading at a cheap valuation – at least compared to other technology operators – with the forward price-to-earnings multiple at 14x. The dividend yield is also an acceptable 1,657%.

Ameriprise Financial (AMP)

Revenue for financial advisory firms is expected to rise from $ 57 billion to $ 200 billion in the next decade. One driving force for this is the digitization of the industry. But then there is the impact of the Baby Boom generation, which has 75 million inhabitants. This group will demand more services to help with pension needs (such as finding ways to make a living from their current assets).

Such trends are definitely good news for Ameriprise Financial. The company is one of the largest financial consulting firms. It has more than $ 900 billion in assets under management and has more than two million customers.

Ameriprise Financial is also a very disciplined organization. Over the past eight years, earnings per share have almost tripled and the company has returned a solid $ 15 billion to shareholders.

AMP shares are also being sold at a discount, with the forward PE at 11x. As for the dividend, it stands at 2.1%.

Cisco Systems (CSCO)

Last year, Cisco Systems’ shares declined by about 6% while the S&P 500 Index achieved more than 18%. Growth sparked again as competition intensified, with delays due to the Covid-19 pandemic.

As for the new year, it is likely to be better for CSCO shares. Analysts expect continued improvement in operations after the company beat consensus estimates in the fiscal first quarter. The company has made a shift to software and recurring subscriber business models. Q2 results are available on February 9th.

Although, the WebEx video conferencing business may be the biggest driver. Cisco has made significant updates to the platform, which would help boost growth. Some of the new features include real-time language translation, speech enhancement and transcripts.

As for the valuation of Cisco, it is at least for large technology operators at relatively low levels. The forward price-to-earnings multiple is 14.3x and the dividend yield is 3.2%.

Verizon Communications (VZ)

The consumer cell phone business in the US is pretty saturated. But it is still a good source of cash flow. Just look at Verizon.

During the first nine months of last year, cash flow was $ 32.5 billion, compared to $ 26.7 billion in the same period in 2019. There are currently approximately 94.1 million subscribers.

But in the coming years, Verizon is poised to get a boost from its 5G network. And it’s more than just consumer deals. If anything, the opportunity for business clients could be even greater. An important factor is the development of peripheral network systems to enable Internet of Thing (IoT) applications, such as on the factory floor.

The valuation on VZ shares is also at discounted levels. The price-to-earnings ratio is 10.88x and the dividend yield is 4.6%. In addition, the company has increased payouts for 13 consecutive years.

Lockheed Martin (LMT)

With the new Biden administration, there will probably be more pressure on the defense budget. Another factor is the increasing budget deficits.

For the large defense contractors, there is likely to be continued growth – especially as there are significant national security risks.

One company that therefore looks attractive is Lockheed Martin, which has the advantage of large scale. Think of it as the largest defense contractor in the US

In the last quarter, earnings increased by 7.3% to $ 17.03 billion and earnings increased by 20.6% to $ 6.38 per share. The major source of business is the massive F-35 program.

But there are other important drivers as well. In fact, the company recently acquired Aerojet Rocketdyne for $ 4.4 billion. The company is a developer of hypersonic technology, which is essential for missiles and space systems.

As for the LMT share, the valuation is 12.2 times the forward earnings. The dividend yield is also at 3.3%.

At the date of publication, Tom Taulli held no (direct or indirect) positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of several books on investment and technology, including artificial intelligence, high-profit IPO strategies, and all about short selling. He is also the author of courses on topics such as the Python language and COBOL.