The recent volatility in the markets over the COVID-19 outbreak shows that you should always be prepared for anything. Stocks can fall for a variety of reasons, but market history proves that it pays to keep a long-term perspective and stay positive about the future.
With that said, there are some good deals available right now. Three that could be rewarding investments from current levels over the next decade are Intel (INTC -3.36%), Booking Holdings (BKNG 0.12%), and Hanesbrands (HBI 0.61%).
Fears of a global epidemic from the virus have driven these stocks, which were already good deals to begin with, to even lower valuations. Here's why you should consider buying shares today.
Image source: Getty Images.
Intel is ready for a comeback
After a few years of being bogged down by competition from Advanced Micro Devices, shares of Intel were in rebound mode before the virus flared up, as the chip giant found some much needed momentum heading into 2020. The shares currently fetch a conservative valuation of 11.8 times trailing earnings and pay a dividend yield of 2.25%.
Intel is starting to fight back against AMD, which has taken share of the server market from Intel. Intel's data center group, including high-end chips for servers, managed to grow revenue by 19% year over year in the fourth quarter, driven by robust demand for Xeon processors.
But the short term could get bumpy. While the impact from the virus has had limited impact on operations so far, other factors could come into play as the year progresses. Some analysts anticipate that Intel may get into a price war with AMD to win back share, and that could pressure near-term profitability.
Looking at the bigger picture, Intel is laying the groundwork for long-term growth. It's planning nine new product releases on 10-nanometer this year, including a next-gen mobile processor, a 5G base station system-on-chip, and an artificial intelligence accelerator. Intel is also working on a discrete graphics processor.
Also, a 7-nanometer chip, which AMD has already launched, is on track to release by the end of 2021.
AMD is winning now, but Intel has the ingredients to deliver returns for investors. It's generating $16.9 billion in free cash flow to fuel investments in new products and dividends. It's not going to take much to send the shares higher from here.
Booking Holdings will survive the coronavirus
One of the most vulnerable industries to the potential impact of the coronavirus is travel. Fears that travelers are going to stay home have hit Booking stock hard in recent weeks. It's similar to what happened to travel stocks after Sept. 11, 2001. Shares of Booking Holdings are down 11% over the last month but trade at a modest valuation of 16.7 times this year's earnings estimates.
During the fourth-quarter conference call, management warned that the coronavirus has already had a negative impact. Currently, Booking is expecting that the number of room nights booked will be down between 5% and 10% in the first quarter.
However, Booking has a stellar record of delivering growth. Revenue has climbed more than 500% over the last 10 years, while free cash flow per share has grown faster, up 890%. Those gains have fueled a similar rise in the stock price.
It has a strong competitive advantage with a wide network of thousands of hotels and restaurants across 230 countries. This should protect the moat against potential entrants to the market, including tech giants such as Alphabet. Booking has the customer service, mobile apps, and relationships with hotel owners around the world to guard and expand its share of the market and deliver growth for investors.
In the short term, management is focused on investing in alternative accommodation offerings, such as attractions, dining, ground transport, and flights. Booking is also building out a payments platform to provide a more personalized and frictionless customer experience.
Future growth may slow compared to previous years. Last year, revenue increased by just 4%, but adjusted earnings were up 15%.
Still, this is a leader in a growing industry, and the recent sell-off has taken the stock down to attractive valuation levels.
It's time to stock up on Hanes
The underwear brand continues to show that its valuation is out of whack with underlying business performance. While the market is worried about the sluggish innerwear segment, total sales increased by 2% in 2019, with currency-neutral organic revenue up slightly in the fourth quarter.
That doesn't sound like much, but this is a stock with a price-to-earnings ratio of about 7 times. Any sustained level of growth could deliver a double on the share price over the next few years.
This looks like a well-managed business. Management is controlling costs and allocating resources to drive better returns for investors, and this can be seen in the 13% year-over-year increase in adjusted earnings in the fourth quarter. Management expects future performance to be even better.
The highlight of the business continues to be the Champion brand, with sales up 22% year over year in the fourth quarter. This is now a $1.9 billion business (about a quarter of total revenue) and still has tremendous potential for long-term growth.
Management has spent the last few years stabilizing the weak performance of the innerwear business while focusing on where to improve sales growth (e.g. Champion) and drive faster growth in profit. CEO Gerald Evans believes 2020 is the year Hanesbrands will turn a corner.
On the recent conference call, Evans said:
With a lot of heavy lifting done ... we believe 2020 represents an inflection point for our company, one that reveals the underlying strength of our ongoing business and unleashes the full potential of our capital allocation model to drive accelerated shareholder returns.
The stock pays an above-average dividend yield of 4.8%. With a low P/E, high yield, and a management team making the right moves, the coronavirus sell-off might be the last chance investors have to buy this value stock at rock-bottom prices.
