Wall Street can be unforgiving. If a stock falls out of favor, its valuation can plummet to mind-numbing depths. The market often gets it right, but not always. Sometimes, much money can be made by getting it right when the market gets it wrong.
It doesn’t even take a lot of money to make money. Got $500? Boom, you’re in the game.
But where to start? Here are three remarkably cheap stocks long-term investors can buy today.
1. A company unleashing stock buybacks
Tobacco giant Altria Group (NYSE: MO) has spent several years in the gutter, trading at a mid-single-digit price-to-earnings ratio. To give you an idea of how low that is, the S&P 500 index, a popular surrogate for the broader stock market, trades at more than 21 times earnings. One might think such a cheap valuation means the company is on the verge of shutting its doors. But that couldn’t be further from the truth. Altria has an investment-grade credit rating and supports its dividend with cash profits. That dividend yields a whopping 9.1% at its recent share price.
Altria management began selling some of its 10% stake in Anheuser-Busch to repurchase more stock, an exciting development considering Altria’s stake in the alcoholic beverage giant was worth about $12 billion, or 16% of Altria’s market cap. Investors can buy Altria today, sit back, and collect a massive dividend while slow growth and stock repurchases steadily drive earnings per share higher over the years.
2. This company is finally focused on the right things
Telecom giant AT&T (NYSE: T) spent a decade trying to become a media company, a move that failed and loaded its balance sheet with debt. Wall Street punished the stock, giving it a decrepit P/E ratio that’s just over 7 times earnings today. However, the operator of the largest wireless network in the United States is finally getting back to focusing on what it does best. It has sold or spun off all its media assets and has paid down enough of its debt that its leverage was only 3 times EBITDA at the end of 2023.
That’s promising for AT&T’s future. Its interest expenses totaled $6.7 billion over the past year. Considering the company’s net income was $14.4 billion, AT&T would be far more profitable if it didn’t have so much debt. AT&T’s healthy 40% dividend payout ratio leaves it with plenty of cash to continue paying off debt.
Investors could see the market start to rate AT&T higher over time. In the meantime, the stock’s dividend yield of 6.5% at the current share price will pay you well for waiting.
3. This beaten-down REIT is a buy
Monthly dividend company and real estate investment trust (REIT) Realty Income (NYSE: O) has been struggling since the Federal Reserve began aggressively hiking benchmark interest rates to combat inflation. REITs focus on real estate and must pay most of their profits to shareholders every year. To fund their growth, REITs often borrow money, and higher interest rates make that strategy more expensive.
Realty Income is still a great company. It has raised its annual dividend payouts for 31 consecutive years.
Additionally, the company specializes in net leases, which put the responsibility for property taxes, maintenance, and insurance on the tenants. Realty Income focuses on recession-proof tenants, leasing properties to dollar stores, pharmacies, and other businesses that will continue to do fine even if consumers cut back on their discretionary spending.
Today, the REIT is valued at just 13 times its distributable cash profits. Its dividend yield of 5.9% at the current share price is at the high end of its historical range. Consider buying this stock and waiting for the Fed’s anticipated interest rate cuts to help the business get back on its feet.
Should you invest $1,000 in Altria Group right now?
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.
Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now was originally published by The Motley Fool
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