The low valuation multiples for value stocks provide a margin of safety that growth stocks rarely offer. However, the challenge lies in determining whether these cheap assets are genuinely undervalued or simply on sale due to their potentially deteriorating business models.
Identifying genuine bargains from value traps is something many investors struggle with, which is why we started StockStory - to help you find the best companies. Keeping that in mind, here are two value stocks trading at big discounts to their intrinsic values and one facing an uphill battle.
One Value Stock to Sell:
Delta (DAL)
Forward P/E Ratio: 14.5x
One of the ‘Big Four’ airlines in the US, Delta Air Lines (NYSE: DAL) is a major global air carrier that serves both business and leisure travelers through its domestic and international flights.
Why Do We Think DAL Will Underperform?
- Demand for its offerings was relatively low as its number of revenue passenger miles has underwhelmed
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 1.7 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $82.55 per share, Delta trades at 14.5x forward P/E. Dive into our free research report to see why there are better opportunities than DAL.
Two Value Stocks to Buy:
Micron (MU)
Forward P/E Ratio: 9.8x
Founded in the basement of a Boise, Idaho dental office in 1978, Micron (NASDAQ: MU) is a leading provider of memory chips used in thousands of devices across mobile, data centers, industrial, consumer, and automotive markets.
Why Are We Backing MU?
- Annual revenue growth of 78.2% over the past two years was outstanding, reflecting market share gains this cycle
- Disciplined cost controls and effective management resulted in a strong two-year operating margin of 38.3%, and its profits increased over the last five years as it scaled
- Performance over the past five years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 43% outpaced its revenue gains
Micron’s stock price of $964.78 implies a valuation ratio of 9.8x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
LPL Financial (LPLA)
Forward P/E Ratio: 10.8x
As the nation's largest independent broker-dealer with no proprietary products of its own, LPL Financial (NASDAQ: LPLA) provides technology, compliance, and business support services to independent financial advisors and institutions who manage investments for retail clients.
Why Should You Buy LPLA?
- Annual revenue growth of 32.1% over the past two years was outstanding, reflecting market share gains this cycle
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Industry-leading 37.3% return on equity demonstrates management’s skill in finding high-return investments
LPL Financial is trading at $273.66 per share, or 10.8x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.
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