Don’t let the rising market keep you from finding market bargains. There are still plenty of seemingly cheap stocks out there. I want to talk about a few of them, and it doesn’t take much to get started in either position, as both stocks are currently trading around $20.
Sirius XM Holdings (NASDAQ: SIRI) And Carnival Corp. (NYSE: CCL) (NYSE: CUK) are absurdly cheap at the moment. Even a $500 investment can pay off big right now if investors realize the value of the shares. Let’s take a closer look.
1. SiriusXM
Warren Buffett warmed to one of this year’s biggest losers last week, adding to his already substantial stake in Sirius XM. Berkshire Hathaway now owns almost a third of the outstanding shares.
Sirius XM, the only game in town when it comes to satellite radio in this country, has fallen on hard times. Subscriber base may have peaked last year, after consecutive quarters of consecutive declines. Organic sales growth has been in the single digits over the past ten years, but has now turned negative.
There are some good reasons why new car buyers don’t pay for satellite radio. Most cars make it easy to stream audio apps they already use on their phone through the car speakers. People don’t drive as much anymore this side of the pandemic. There are also some good reasons why the stock itself has fallen out of favor after executing a reverse stock split following the tracking stock consolidation. Sirius XM has felt the pressure, and so have its shareholders. Despite Buffett’s stock purchases moving higher this month, Sirius XM shares have fallen in half this year.
Sirius XM isn’t half the company it used to be. The reverse split is now fading in the rearview mirror. There is also no more confusion among shareholders about following stocks that trade at a deep discount to common stock. In principle, Sirius XM is also in the driver’s seat. Companies are calling people back to the office. Gas prices are now near a three-year low. The Federal Reserve, which is arranging a rate cut, should make it easier for new car owners to get behind the wheel of a ride with factory-installed satellite radio.
The stock is now also historically cheap. Sirius XM trades for less than 10 times earnings. The high dividend yield of 3.9% will look even better as interest rates continue to fall. Analysts also see a return to sales and revenue growth next year. It’s time to take action here with this surprisingly cheap media stock that’s generating a ton of free cash flow and revenue even during this challenging period.
2. Carnival
Unlike Sirius XM, Carnival is an industry that has come back into the market. Shares are up 55% since bottoming two months ago, up 166% since the start of last year. That doesn’t mean the world’s largest cruise line isn’t cheap.
Carnival is stronger now than ever before the pandemic. Customer deposits for future sailings have never been stronger than at this point in the year. Revenue and adjusted earnings per share rose 15% and 62%, respectively, in the last quarter. Customer deposits reached another high for this time of year, a good sign that the coming quarters will also be strong.
Carnival is trading for just 16 times what it expects to earn for the fiscal year that ends next month. It’s trading for less than 13 times analysts’ fiscal 2025 earnings targets, and Wall Street pros have been on the short end of the stick for a while. Carnival has topped analyst estimates for more than two years, posting double-digit percentage gains in each of the last five reports.
Debt has been a problem for the industry as it has to finance the more than year-long operational pause after sailings were suspended due to the pandemic. It’s using its newfound profitability to tackle those demons. Carnival has paid down $7.3 billion of its debt since the beginning of last year. If the economy can make a soft landing, the waters should be just as inviting for the cruise lines.
Should You Invest $1,000 in Sirius XM Now?
Before you buy shares in Sirius XM, consider the following:
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Rick Munarriz holds positions at Carnival Corp. and Sirius XM. The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool recommends Carnival Corp. On. The Motley Fool has a disclosure policy.
Do you have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Now was originally published by The Motley Fool
