While the market isn't looking particularly cheap right now, you can inevitably find pockets of value. Delta Air Lines (DAL -1.83%), positioning and workflow-technology company Trimble (TRMB -1.52%), and building-materials company Owens Corning (OC -1.10%) fit the bill. Here's why.
Delta Air Lines is the pick of the airline stocks
Whether you are looking at its price-to-earnings (P/E) ratio or a metric that includes appreciation for the company's adjusted-net debt of $19.2 billion, such as enterprise value (market cap plus net debt) over earnings before interest, taxation, depreciation, and amortization (EBITDA), the stock is a great value.
DAL PE Ratio data by YCharts.
One reason for the low rating is the industry's traditionally highly cyclical nature. Quite often, relatively high earnings and low valuations have presaged a cyclical downturn in the sector as ticket-pricing power and earnings collapse as demand wanes. Still, airlines stubbornly persist in keeping less profitable routes going.
That's traditionally been the case, and in the summer, the market panicked and sold off quality operators like Delta and United Airlines due to some excess capacity and the impact of the CrowdStrike update issue on flight delays.
However, the good news is that Delta and United Airlines' management recently said the industry reacted rationally to the overcapacity and cut routes. Both said they are improving their revenue per available seat mile (RASM) metric -- a key industry measure that indicates capacity conditions. As such, the market may be overly discounting Delta Air Lines stock, creating an excellent buying opportunity.
Trimble's growth is just getting started
The technology company isn't the easiest to understand. Its roots lie in positioning hardware and the perpetual software that help with precise positioning on construction/infrastructure projects, geospatial mapping, agriculture, and transportation, but its future lies in helping customers with their daily workflow.
Trimble uses the digital information gathered from its positioning and sensing technology to help with planning and modeling. It ultimately analyzes and optimizes daily work. Think transportation fleets with routes optimized in real time or precise daily modeling and monitoring of construction/infrastructure projects.
Its subscription and recurring-software revenue (measured in terms of annualized-recurring revenue, or ARR) continues to grow at a low-teens rate even as its overall organic-revenue growth is only set to be 5% to 7% this year.
Ultimately, growth in ARR will drop down into Trimble's cash flow, and that's why Wall Street analysts have Trimble growing free cash flow (FCF) from around $505 million in 2024 to $845 million in 2026, putting Trimble on 17 times FCF in 2026 -- a very cheap multiple for a business growing ARR at a low-teens rate.
Owens Corning: a great stock for the housing recovery
Suppose you are looking for a stock to play a lower interest rate environment and its impact on the housing market. In that case, Owens Corning, a roofing, insulation, composites, and now, doors company, is a great option.
As every investor knows, buying more of it is a good idea if your company's stock is weak due to a temporary slowdown in its end markets. Still, as every investor also knows, this is not an easy thing to do. However, Owens Corning did it this year by acquiring interior and exterior doors company Masonite for an implied value of $3.9 billion. The deal increases Owens Corning's exposure to the North American residential market, increases its addressable end market, and comes with an opportunity to generate at least $125 million in synergies.
The synergies come from the complementary sourcing and supply chain, and sharing sales and general and administrative expenses. For reference, Owens Corning's existing roofing and insulation-materials products are sold into many of the same builders, contractors, distributors, and home centers that doors are sold into.
Image source: Getty Images.
The deal makes sense as an opportunity to build scale by adding complementary products to its product portfolio. It will make even more sense if Masonite turns out to have been acquired near the bottom of the housing-market cycle.
With Wall Street analysts forecasting earnings per share of $15.40 in 2024 and $16.41 in 2025, Owens Corning trades on 11.3 times and 10.6 times estimates for 2024 and 2025 earnings, respectively, making it look like an excellent value opportunity.
