Investors sometimes have a tendency to beat themselves up in search of the next great stock when, in reality, great stocks can probably be found right under their noses. Though big-brand stocks might be referred to as "boring" or "played-out," they also have established business models and well-respected brand names that tend to draw in consumers and investors.
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Of course, investors usually won't buy just any old big-brand stock -- they want a great deal. If you're looking for big-brand stocks to add to you portfolio that are trading at ridiculously cheap valuations, then these three stocks are worth your consideration.
Image source: Getty Images.
One of the cheapest big-brand stocks investors can consider buying right now is banking giant Citigroup (NYSE: C), which is still trading below its tangible book value of $65.94 as of the end of the first quarter. It's the only major U.S. bank to continue trading below its tangible book value.
Why no love for Citigroup? It's a mixture of the bank still working through a number of legacy concerns from the Great Recession as well as its reliance on Europe for growth. The EU has struggled under the weight of debt from Greece, Spain, Portugal, and Ireland, as well as uncertainty surrounding Britain's imminent exit. The result is that Citi has underperformed its peers.
The good news is, we're beginning to see a sizable turnaround in its underlying business. Interest rates in the U.S. are on the rise, and Citigroup's first-quarter 10-Q notes that a 100-basis-point increase in short- and long-term lending rates should lead to an estimated $2.2 billion increase in net interest revenue. Even though this increase won't entirely be profit, the bank essentially doesn't have to do a thing, yet it's earning more on its variable rate loans.
We're also beginning to get some European clarity, with the French elections in the rearview mirror and a few of the EU's troubled economies on the mend. This provides hope that Citi's overseas operations will perform better than expected throughout the remainder of the decade.
Trading below tangible book value and for less than 11 times Wall Street's forward profit projections, Citigroup looks ridiculously cheap.
2017 Chevy Silverado 2500 HD. Image source: General Motors.
Purely in terms of forward P/E, there may not be a cheaper big-brand stock than automaker General Motors (NYSE: GM). The company's forward P/E is vacillating between five and six.
Why so cheap? On a macro level, a number of pundits believe U.S. auto sales have peaked over the intermediate term, which would bode poorly for GM's short-term sales figures and profitability. There's also clear concern that electric vehicle manufacturer Tesla could be the wave of the future, and that companies like General Motors will be pushed to the wayside. Finally, recall costs are still lingering and hurting GM's bottom line.
However, there are plenty of positives, too. For starters, the company announced record first-quarter earnings and revenue in April, which was driven by sales of full-size trucks and crossovers. Though GM's sedan sales have slumped as fuel prices at the pump have declined, it has boosted consumers' appetites for trucks, SUVs, and crossovers. These vehicles have considerably higher margins than sedans, so this is a trade-off GM will make any day of the week.
Even more intriguing is GM's long-term growth opportunity in China. Though vehicles sales in China declined 5.2% in the first quarter as a result of a reduction in the country's vehicle tax purchase incentive, this decrease should only be temporary. General Motors is on track to launch nine new or refreshed SUVs or multi-purpose vehicles in China in 2017 to take advantage of a burgeoning middle class. With China's auto industry still seemingly decades from peaking, GM has a high-margin growth opportunity on its hands, which could make this ridiculously cheap auto stock worth adding to your watchlist or portfolio.
Image source: Whirlpool.
Another ridiculously cheap big-brand stock that could be worth a closer look is the world's largest appliance manufacturer, Whirlpool (NYSE: WHR). It currently has a forward P/E of less than 11, and Wall Street anticipates as much as $21 per share in full-year EPS by 2020 (that's better than 10% EPS growth each year).
Why isn't Whirlpool being valued appropriately? The company has seen its top line affected by adverse currency movements, while its bottom line has been adversely affected by Britain's upcoming exit from the EU. Last year, Whirlpool even wound up modestly reducing its EPS forecast, which is very much out of the ordinary for the appliance giant, and it also reported a 9% constant currency sales decline in its Europe, Middle East, and Africa (EMEA) operating segment in the first quarter of 2017.
Today, though, Whirlpool looks as strong as ever. If you can look past currency fluctuations, which most seasoned investors are going to be able to do, you'll see a company delivering strong core market growth with even faster emerging market sales expansion in most territories.
Overall, sales grew by 4% in the first quarter, with its core North American market delivering 7% sales growth on a constant currency basis. Meanwhile, Whirlpool Asia saw sales jumped by 16% on a constant currency basis. Whirlpool has been infiltrating Asia via acquisitions over the past couple of years in an attempt to lay the groundwork for double-digit sales growth for many years to come. Even EMEA's sales decline isn't a huge concern, with acquisition complexity causing temporary supply chain disruption. These aren't long-term issues, which should mean some pretty favorable same-region sales comparisons next year.
With margins expanding worldwide, and most of Whirlpool's problems being very short-term in nature, this "king of the kitchen" may deserve a spot in your portfolio.
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