Bargain Bin: 3 Cheap Stocks to Buy Before Memorial Day
Wall Street investors are looking for cheap stocks to buy before the summer holiday period. Despite the rally we have witnessed so far in the year, risks like increased market volatility and uncertainty over economic factors still persist. Geopolitical tensions and the upcoming presidential election in November also add to the difficulty of finding hidden gems.
To navigate these challenges, our focus today is on companies with strong fundamentals and future growth potential, including those stocks whose prices might have come under pressure in 2024. We will also pay attention to trailing or forward price-to-earnings (P/E) ratios. The trailing P/E is calculated by dividing the current share price by the earnings per share over the past 12 months, while the forward P/E estimates likely earnings per share for the next 12 months. Though low ratios imply value, excessively low ones may also signal risks, reflecting market concerns about the company’s prospects.
Let’s now explore three cheap stocks to buy before the holiday season. Remember, diversification is essential. Consider a mix of stocks across different sectors to spread risks.
Cisco Systems (CSCO)
The first company on our list of cheap stocks to buy is Cisco Systems (NASDAQ:CSCO). I believe it offers a blend of value, growth potential and stability in cybersecurity and networking solutions. After a challenging 2023 and weak 2024 performance, the stock potentially offers better value for long-term investors.
In mid-May, Cisco reported mixed fiscal third-quarter earnings. Investors raised eyebrows as revenues declined 13% year-over-year (YOY) to $12.7 billion, primarily due to customer implementations of existing products. Non-GAAP earnings per share (EPS) was 88 cents, down 12%, with a 1 cent impact from the Splunk deal.
Meanwhile, earlier in February, Wall Street paid attention to Cisco’s announcement. Management will collaborate with Nvidia (NASDAQ:NVDA) to develop artificial intelligence (AI) infrastructure solutions. Investors are hopeful that Cisco may expand its product portfolio, driving growth.
Looking ahead, Cisco’s management increased its revenue guidance for fiscal year 2024. The $28 billion acquisition of Splunk underscores Cisco’s strategic shift towards cybersecurity, complemented by the Isovalent acquisition. Notably, Splunk already contributed $413 million in revenues.
Year-to-date (YTD), CSCO stock has declined over 6.5%. As a result, it’s currently trading at 15.7 times trailing earnings, 13.8 times forward earnings and 3.4 times sales. CSCO’s metrics are quite different from the higher multiples we see in many tech stocks. Additionally, Cisco stock now offers a dividend yield of over 3.4%. Analysts predict a 12-month price target of $53.25, with a potential increase of 13%.
Merck (MRK)
If you are looking for another contender among cheap stocks to buy, Merck (NYSE:MRK) deserves your attention due to its strong fundamentals and attractive valuation. The healthcare company’s diversified pipeline in vaccines, HIV and oncology supports its growth potential.
In its latest quarterly report, Merck announced a 9% YOY increase in revenue of $15.8 billion, driven by strong growth in oncology and vaccines. Keytruda and Gardasil were major contributors, with its sales growing by 24% and 14%, respectively. Non-GAAP EPS rose 48% to $2.07.
Merck continues to advance its pipeline and portfolio, including the FDA approval for Winrevair. Recently, it announced promising results about treatment for advanced gastric cancer, potentially boosting the growth of the drug as well. In addition, the company has expanded its offerings through acquisitions, including Harpoon Therapeutics and the proposed acquisition of Elanco‘s (NYSE:ELAN) Aqua Business. As a result, management raised both the outlook for revenues and EPS for fiscal year 2024.
Since January, MRK shares have surged by over 20%, while currently offering a 2.3% dividend yield. Also, they change hands a relatively attractive valuation at 15.2 times forward earnings and 5.4 times sales. Wall Street shares this optimism, projecting a 12-month price target of $145, an upside potential of 10%.
MGM Resorts International (MGM)
As the summer travel season approaches, the Transportation Security Administration (TSA) braces for unprecedented passenger volumes nationwide. This surge in travel not only signifies a resurgence in leisure and business activities but also promises a boon for the hospitality industry including casinos. With the increasing trend of electronic betting, both traditional and online gaming firms will likely benefit from the enthusiasm for travel and entertainment.
Therefore, our final pick among the cheap stocks to buy is MGM Resorts International (NYSE:MGM). With iconic properties like Bellagio and Mandalay Bay across global locations, MGM offers diverse amenities from gaming to BetMGM’s online betting, making it a notable long-term investment.
MGM’s first-quarter financials revealed robust revenues and profits. Consolidated revenues of $4.4 billion notched a record for the period, driven by strong domestic and international travel and hotel booking trends. Adjusted EPS came in at 74 cents, a significant improvement from 44 cents the previous year.
Management’s forward guidance suggests continued momentum in 2024, with plans for expansion into online sports betting and international markets such as Eastern Europe and Japan. The company also plans to continue investing in its business, including share repurchases and equity investments, to drive long-term growth and increase shareholder value.
Despite an 8% decline in its stock price so far this year, MGM’s potential for revenue and margin growth is backed by its relatively favorable metrics, including a trailing P/E ratio of 15.7x and a P/S ratio of 0.86x. Finally, analysts’ 12-month average price target of $56.5 indicates a potential increase of 38%.
On the date of publication, Tezcan Gecgil held both long and short positions in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
