The stock market has had an impressive rally so far in 2024. S&P 500 index is up 14.5%, and the even more technology-intensive Nasdaq Composite is up 18% over the period. Encouraging earnings results and excitement around artificial intelligence (AI) and other trends have helped big-name stocks including Apple, NvidiaAnd Amazon have risen to new valuation heights.
Some of the market’s hottest stocks could still rise further, but it would be a mistake to ignore opportunities in companies that are still trading well below their previous valuation peaks. If you’re on the hunt for investments that offer attractive valuations and strong long-term prospects, read on to see why two Fool.com contributors Altria Group (NYSE: MO) And Walt Disney (NYSE: DIS) as top stocks to buy now.
Altria is a strong defensive stock with a great dividend profile
Keith Noonan: Altria’s shares are up about 13% so far this year, but the company’s stock is still down about 41% from its peak. While the tobacco giant continues to lead the U.S. market with its Marlboro brand, it faces some secular headwinds. Consumers continue to move away from cigarettes, and that trend looks set to continue.
The company’s revenue and non-GAAP adjusted earnings each declined about 2.5% due to declining unit sales in the smoking tobacco category. Total cigarette sales in the period declined about 10% year-over-year. On the other hand, management reaffirmed its guidance for annual adjusted earnings per share of 2% to 4.5%.
Thanks to price increases and share buybacks, Altria has managed to grow earnings per share by about 26% over the past five years. While the company faces long-term headwinds from declining unit volumes, the stock is still attractively valued.
Altria trades for less than 9 times this year’s expected earnings and pays a dividend yield of 8.6% based on the company’s current share price. What’s more, investors who buy the stock today may not have to wait long to enjoy an even greater yield.
Last August, Altria raised its dividend by about 4.3%. The payout increase marked the 58th dividend increase the company has made in the past 54 years.
The tobacco giant is undoubtedly facing challenging trends in the cigarette market, but it continues to invest and build in smokeless product categories, and its dividend payout should remain safely covered for the foreseeable future. With a strong earnings base despite demand headwinds and a large, sustainable dividend, Altria is an attractive defensive stock that also offers attractive capital appreciation potential.
Investors are excited about Disney again
Jennifer Saibil: Disney is still the company to beat in entertainment, with a robust slate of films, unmatched global theme parks, an unparalleled content library, and a host of other gold-star assets. It has pulled in $89 billion in trailing-12-month revenue over the past three years, ranking it No. 47 in the Fortune rankings of largest companies in the US That’s a 40% increase in the last three years. So why is the stock price down 51% from its peak?
Mostly a lot of volatility. Disney has made a stunning comeback from the pandemic lows, but its various segments have been all over the place since then.
Parks were closed and there was no revenue, but that has changed and parks are back to square one. Park revenues grew 10% year-over-year in the second fiscal quarter of 2024 (ending March 30). That’s historically been the trend and barring another global pandemic or other upheaval, it should continue.
Streaming has grown dramatically in recent years, now accounting for more than half of the entertainment segment’s revenue and a quarter of the company’s total revenue, driven by a mix of subscriptions and advertising revenue. Streaming profitability excluding ESPN+ first turned profitable in the second quarter, and management expects full profitability by the end of the fiscal year. That should give the stock a significant boost.
The other parts of Disney’s content business, including linear networks and blockbuster films, are still struggling. Viewers continue to cut cords or switch from cable to streaming, hurting cable revenues, and they’re also moving away from traditional broadcast TV, hurting the advertising business.
Bob Iger’s return to the hot seat as CEO has provided shareholders with relief and brought some stability to the company. Investors have a lot of faith in Iger, who led the company through an incredible 15 years of growth before stepping down from the CEO role in 2020. He returned for what was intended to be an interim role while the company figures out its direction, but his term has already been extended through 2026. Disney has focused on driving profitability from Disney+, bringing magic back to the parks and giving more freedom to the creative minds who make the whole system work.
Disney shares are climbing this year, up 13% as investors cautiously build enthusiasm. In the long run, it should beat another market-beating winner.
Should You Invest $1,000 in Altria Group Now?
Before you buy Altria Group stock, you should consider the following:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil holds positions at Walt Disney. Keith Noonan holds positions at Walt Disney. The Motley Fool holds positions at and endorses Amazon, Apple, Nvidia, and Walt Disney. The Motley Fool has a disclosure policy.
There’s a Bull Market: 2 Brilliant Stocks Down 41% and 51% to Buy Now was originally published by The Motley Fool
