By James Brumley, InvestorPlace Feature Writer
With the end of the year upon us and a new calendar year approaching, it’s time to prune your portfolios of the dead weight and plant the seeds that will flourish in the coming year.
And what better foot to start off the new year with than a couple of undervalued names that have lots of room to make forward progress before hitting any major valuation headwind?
With that as the backdrop, here’s a closer look at some unusually cheap stocks to buy in the foreseeable future.
Don’t let the word “cheap” throw you for a loop, these are underloved stocks that will serve as a way to squeeze a little extra juice out of the market in 2016.
Hewlett Packard Enterprise (HPE)
Yes, Hewlett-Packard was struggling before it split into two companies, but the division that was facing the core of the struggle was the other division, HP (HPQ), which makes personal computers and printers.
The business-oriented, cloud division — the one known as Hewlett Packard Enterprise (HPE) — is actually compelling.
One of the ways HPE is compelling is in its outlook shared last month with its quarterly earnings report. It affirmed per-share profit guidance of between $1.85 and $1.95 for the current fiscal year (ending in October), right in line with estimates.
And given that this side of the old Hewlett Packard company has now posted two quarters of year-over-year revenue growth (when stripping out the effects of currency volatility), it wouldn’t be wise to bet against it now … especially in light of the strengthened partnership with Microsoft (MSFT).
The kicker: With a forward-looking price-earnings of only 7.7, HPE easily qualifies as one of the top cheap stocks to buy sooner than later.
Gilead Sciences (GILD)
Gilead Sciences (GILD) is another iconic name that’s wrongfully been forced to join the ranks of the market’s erroneously cheap stocks … not that bargain hunters are complaining. As of the latest look, GILD is priced at a trailing P/E of 9.3 and a forward-looking earnings multiple of 8.5.
The single-digit valuation is the result of an 18% tumble since June, though most of the damage was done by the now-infamous Hillary Clinton tweet from Sept. 21 that took dead-aim at specialty pharmaceutical pricing.
Although the presidential-hopeful wasn’t explicitly targeting Gilead Sciences, in light of the uproar over the high price of Gilead’s recently unveiled hepatitis C drugs Harvoni and Sovaldi (a full treatment with Sovaldi costs $84,000, and a full treatment of Harvoni costs almost $100,000), GILD investors were fearful any regulatory reforms would reach far and wide.
Plainly put, though, those threats are more bark than bite; the worst-case scenario is more than priced in.
In the meantime, Gilead Sciences recently dished out an encouraging update on its phase 3 leukemia drug Zydelig. Though Zydelig may not become a blockbuster, it does speak to Gilead’s cancer ambitions and capabilities. And Gilead has also exposed its hand as a buyer of whatever biopharma capabilities it wants but doesn’t yet have.
AMAG Pharmaceuticals (AMAG)
With a market cap of only $929 million, AMAG Pharmaceuticals (AMAG) isn’t exactly a household name. Unlike so many other similarly sized biopharma names, though, AMAG isn’t some developmental outfit with more dreams than marketable drugs in the pipeline. AMAG Pharmaceuticals is selling lots of drugs right now, and turning a profit by doing so.
Over the past four reported quarters, AMAG Pharmaceuticals has driven $362 million in sales, and turned $168 million of that into net income.
Those figures translate into a perfectly palatable price-sales ratio of 2.4 and trailing P/E ratio of 5.2. And with a portfolio of perennially marketable drugs that other drugmakers aren’t clamoring to compete with, the top and bottom lines are growing at a sustainable pace.
There’s a small detail, however, that makes AMAG one of the best dirt-cheap stocks to buy right now — it’s got $442 million in the bank right now, which means the portfolio and pipeline are valued at a mere $487 million.
Pilgrim’s Pride (PPC)
Between another avian flu breakout, rising operational costs, export restrictions and higher chicken prices in grocery stores despite lower wholesale prices, Pilgrim’s Pride (PPC) won’t be looking back on 2015 as a year to remember.
Neither will investors.
Thanks to all the aforementioned headwinds, PPC shares are down more than 20% year-to-date. The sellers, however, may have overshot. As of the latest look, PPC shares are priced at a trailing P/E of 7.46 and a projected 10.6.
Those numbers more than qualify Pilgrim’s Pride shares to join the ranks of the market’s cheap stocks at this time, but are they actually buy-worthy?
Giving credit where it’s due, Alpha Gen Capital has noted that the so-called chicken cycle (of overproduction that leads to sub-par pricing that in turns leads to underproduction which leads to high pricing, etc) is at or near a cyclical low, meaning the environment for chicken producers should swing upward in 2016.
That shift, along with a costs-saving initiative Pilgrim’s Pride has put into place this year, likely means PPC is underestimated heading into the new year.
Citigroup (C) shares are right back where they were in mid-2013, leaving behind a trail of falling year-over-year revenue, and at best, choppy revenue.
The coming year may finally be one that sees Citigroup turn the corner, so to speak, sending C shares higher in a meaningful way.
That’s a tough idea to swallow for some traders, with echoes of reports that the bank would be taking a $300 million “repositioning” charge in the fourth quarter of this year, and reports that a 2008 trading gaffe has come back to haunt Citi.
Never even mind the fact that the company says the current quarter’s trading revenue is going to be down quite a bit.
All in all, it looks pretty bad.
So what’s C doing on a list of stocks to buy as 2015 becomes 2016? The long streak of weakness against a backdrop of occasional success/growth has quietly left shares as one of the market’s truly cheap stocks — the forward-looking P/E is a mere 9.1.
With the worst-case scenario already priced in — and more — even a modest economic rebound could send C higher.
Navient Corporation (NAVI)
Most investors probably haven’t even heard of Navient Corporation (NAVI) … even ones that have dealt with the company as a consumer. Navient performs a variety of middleman services for federal student lending.
More important to current and would-be investors, there’s good money in that business.
Those who know NAVI well, will know that the top line as well as the bottom line (though less consistently) have been slowly slumping, as enrollments in colleges have been falling and loan delinquencies are still on the rise.
And yet, for a speculator willing to take a swing on the chance all those trends have already seen their worst, this is one of those few cheap stocks that just might be worth a bit of a gamble. The forward-looking P/E is a paltry 6.1.
Terex (TEX), however, has largely proven to be an exception to that trend. Even so, Terex finally began to show cracks last quarter, missing earnings estimates and lowering its full-year expectations.
The $64,000 question is, was last quarter a fluke, or an omen?
Opinions vary, but there’s a good chance that Terex’s specialty — aerial platforms and cranes — may be more resilient than you think. After all, even with last quarter’s lull, sales have held up reasonably well over the past couple of years, and even to the extent Terex has hit a headwinds, savvy cost-cutting has allowed the organization to keep growing the bottom line.
In other words, it’s a well-managed outfit that has largely evaded the trouble that other, similar companies have been handed of late. Perhaps its limited reliance on overseas sales has helped TEX where it hurt others.
Whatever the case, with a trailing P/E of 9.5 and a forward-looking P/E of 9.52 TEX has earned a spot on a list of underestimated cheap stocks to buy for 2016.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.