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2 Stocks Down 48% and 82% to Buy Right Now

The S&P 500 index recently jumped to a new record high, and investors are in a bullish mood as macroeconomic pressures appear to be lifting. On the other hand, not every stock is soaring and there are still underappreciated stocks trading at big discounts compared to previous highs. Some of these overlooked stocks are poised to be fantastic performers.

With that in mind, read on to see why two Motley Fool contributors identified Altria Group (NYSE: MO) and Roku (NASDAQ: ROKU) as top investment opportunities. One offers an almost unbeatable dividend yield and the other is a beaten-down growth stock with explosive comeback potential.

This passive income machine trades at an incredible value

Keith Noonan (Altria Group): With the stock market surging, dividend yields have generally been pushed down. But Altria Group stock has sat out the rally and is actually down 10% over the past year. Pulling back further, the company's share price is down roughly 48% from its peak in 2017.

Along with continued dividend payout increases, this trend of a falling stock price has pushed the company's dividend yield up to 9.5%. With news that Walgreens Boots Alliance will be cutting its dividend, Altria Group now offers by far the biggest yield of any stock in the S&P 500 index.

MO PE Ratio (Forward) Chart

MO PE Ratio (Forward) data by YCharts

Trading at under 8 times this year's expected earnings and paying a huge dividend yield, Altria stock offers great value at current prices. Even better, there are good reasons to think that investors who buy the stock will see the yield on their shares continue to grow over time.

With the payout increase that Altria delivered last August, the company increased its dividend by 4.3%. The company has now increased its dividend 58 times in the last 54 years. Altria expects to grow its adjusted earnings per share and annual dividend per share at mid-single-digit rates through 2028.

Even though the company has faced declining unit volumes for its core cigarette offerings, it managed to grow non-GAAP (adjusted) earnings thanks to pricing increases and stock buybacks. Per-share earnings increased at a compound annual growth rate of 7.3% from 2017 through 2022, and the business grew earnings 3.3% across its first three reported quarters in 2023.

The company is aiming to diversify into other product categories and estimates that it can grow revenue on smoke-free products in the U.S. from $2 billion in 2022 to $5 billion in 2028. The company is also exploring opportunities in nicotine-free products and sees a multibillion-dollar annual revenue opportunity in the category. If Altria makes significant progress on these fronts, Wall Street could be willing to assign significantly higher valuation multiples to its stock.

As it stands, Altria Group offers investors defensive benefits and large, dependable dividends. With shares trading at such low levels, the stock also has significant capital appreciation potential.

Roku's pricing policy: Painful now, yet wise in the long haul

Anders Bylund (Roku): Once upon a time, media-streaming platform pioneer Roku was a bona fide market darling. At its all-time high of $479.50 per share in July, 2021, the stock traded at nosebleed-inducing valuation ratios such as 28 times sales.

Times have changed. Today, Roku shares are available for just 3.7 times trailing sales. The stock may have gained 70% in the last 52 weeks, but it still trades roughly 82% below the lofty highs of yesteryear.

With long-term price moves of this caliber, Roku might look like a failing growth stock. You know, one of those short-lived success stories that were perfect for a limited era and useless in the next. In Roku's case, many investors wrote the company off as an expired gadfly at the end of the COVID-19 lockdowns and work-from-home policies. Are people even buying smart TV sets or watching streaming video anymore?

As it turns out, they are.

Roku's top-line growth story didn't end in 2021. Measuring from the supposed peak of that summer, trailing sales are up by 45%. The company boasted 75.8 million active user accounts in the third quarter of 2023, up from 55.1 million in Q2 2021. The user growth train never slowed down. Average revenue per user is up. Streaming hours on the Roku platform are up by 55%. The business is actually booming.

It's true that Roku's profit picture has been weak in recent quarters. That was a strategic decision, though. Many companies passed their inflation-boosted costs of doing business on to their customers, dodging profit hits but also adding more weight to the inflation-flavored anchor. Roku went the other way, holding its product prices and advertising rates steady. The company accepted a couple of years with bottom-line pain in exchange for continued growth where it matters most.

Roku is building a massive global user base to support robust profits and cash flows in the future. If this strategy sounds familiar, you've probably seen Netflix -- ultimately Roku's parent company and most important streaming-service partner -- execute it to perfection over the last couple of decades. Burn some cash early on in order to dominate the global streaming market from the start. These days, Netflix generates billion-dollar cash flows in every quarter and the stock is up more than 900% in a decade.

That's the role model Roku CEO Anthony Wood has chosen to follow. Roku investors of the future will look back at this period as a terrific buying window with ridiculously low share prices. Even if Roku never regains that coveted market-darling title, a merely reasonable valuation with price-to-sales ratios in the mid-teens would result in multibagger shareholder returns. That's what I expect to see as Roku continues its global expansion amid a healthier economy.

Should you invest $1,000 in Altria Group right now?

Before you buy stock in Altria Group, consider this:

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Anders Bylund has positions in Netflix and Roku. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Roku. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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