Stock market indexes are at or near all-time highs, and the S&P 500 has gained nearly 50% over just the past three years. It can be hard to find bargain investment ideas in such a positive environment. As Warren Buffett has pointed out, "It's optimism that is the enemy of the rational buyer."
With that idea in mind, below I'll take a look at a few stocks that have missed at least part of the recent rally but still look like strong long-term investments. Read on to find out why Carnival (NYSE: CCL), Procter & Gamble (NYSE: PG), and eBay (NASDAQ: EBAY) might be cheap right now for the wrong reasons.
Cruising for a discount
Carnival's stock has declined 8% over the past year, making it cheaper compared to the broader market and also compared to peers like Royal Caribbean. Yet the cruise giant's business is as strong as it has ever been. In fact, Carnival's growth beat management's targets in each of the first two quarters of the fiscal year, with its most recent report showing strong sales growth and healthy profits thanks to robust vacation demand and rising ticket prices.
Wall Street is worried about the potential for a growth slowdown in the second half of 2018, however. Coupled with higher fuel costs, such a move might crimp profits in the short term. Yet investors can look past the next few quarters toward what should be a bright few years to come for the industry leader. Carnival is planning to add 18 ships to its fleet between now and 2022, which it can deploy to the geographic markets that are seeing the strongest vacation demand. In the meantime, investors can collect an annual dividend yield in excess of 3% while they wait for shares to recover.
Bulk up on the essentials
Judging by the stock's performance over the last five years (a paltry six percent cumulative gain), investors are in a sour mood about Procter & Gamble's business. Some of that pessimism is justified, given that P&G has shed market share in a few key product categories, like shaving care, during that time. The broader consumer products industry is facing wider challenges, too, including rising input costs.
Yet P&G is faring better than its peers in a few important ways. Its sales growth pace is on track to beat Kimberly Clark's, for one. Procter & Gamble also enjoys industry-leading profitability thanks to an impressive selling infrastructure that's become even more efficient through an aggressive cost-cutting program that launched in 2013.
P&G is aiming for faster sales growth this year and is currently rolling out significant price increases that could boost earnings. Investors are right to be cautious about that bright outlook. But the stock doesn't need head-turning revenue figures to outperform rivals from this low point.
An online business that Wall Street left behind
Investors pushed eBay shares lower over the past year as the online selling marketplace has struggled to maintain a firm business rebound. Sales volumes have slowed since the start of 2018, rather than accelerating as Wall Street had hoped. And it's hard to celebrate a 7% sales volume boost when more fully integrated peers like Amazon and Walmart are announcing e-commerce growth figures closer to 35%.
eBay has a few things that these rivals don't, though, including robust profitability and an asset-light business that already generates tons of excess cash. CEO Devin Wenig and his team might have preferred slightly stronger sales growth, but they did warn investors to expect volatility in the expansion rate as eBay makes aggressive changes aimed at improving the shopping experience on its platform. That's the right long-term focus, even if Wall Street hates the uncertainty it brings to short-term results.
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*Stock Advisor returns as of August 6, 2018The author(s) may have a position in any stocks mentioned.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Carnival and eBay. The Motley Fool has a disclosure policy.