2 ultra-cheap stocks that are trading below their book value
When a company’s stock is trading below its book value, it can be a sign that the stock is significantly undervalued. This is not always a guarantee, as sometimes investors are simply unwilling to pay for the declared value of a business if there is a serious risk to the business. In addition, they may believe that the company’s assets are overvalued.
But two companies that appear to have solid potential and could be making incredible bargains right now are Viatris (NASDAQ: VTRS) and Kraft Heinz (NASDAQ: KHC).
Healthcare company Viatris didn’t start trading on the Nasdaq until last year after it split from industry giant and COVID-19 vaccine maker Pfizer. The spin-off allowed Pfizer to focus more on innovative medicine by allowing Viatris to differentiate itself from non-patent and generic brands. But investors were not bullish on the stock, as Viatris shares fell more than 28% in 2021 (the S&P 500 is up 14%.) The stock is so heavily discounted that it trades at a price / book multiple of just 0.77, nowhere near its declared value (i.e. the asset minus the passive.)
One of the reasons investors probably don’t buy the stock: Viatris is taking losses. For three consecutive quarters the company has reported a net loss and two of those times it was over $ 900 million. But investors need to be patient with the business as better times are ahead for the business. Viatris expects to achieve cost synergies of approximately $ 500 million this year. And by 2023, that number will double to over $ 1 billion, which will position him for a much better job in the near future. The company hopes to realize these cost savings through restructuring efforts, which include consolidating manufacturing sites and creating “centers of excellence” that will drive efficiency.
Viatris ensures a solid long-term establishment because its activity is only in its infancy and the future looks bright. Sales of $ 4.6 billion for the period ending June 30 were flat on an adjusted basis, but that doesn’t mean there is no growth to come. The company predicts that this year it will have $ 690 million in revenue from new products while working on its pipeline to add more products to the mix (including Semglee insulin, which recently received approval from the Food and Drug Administration.) By adding revenue while also realizing cost synergies, profitability could be on the horizon for Viatris sooner rather than later. This promising stock also pays a dividend yield of 3.3%, which is above the S&P 500 average of just 1.3%.
2. Kraft Heinz
Another stock that seems undervalued right now is food company Kraft Heinz, known for its popular brands including Kool-Aid and Oscar Mayer. Its shares are up a modest 7% since the start of the year. And until recently (possibly due to increasing COVID-19 cases and concerns about inflation), it outperformed the S&P 500. At 0.9 times the book value, it is not as small as Viatris, but there’s still a lot of good value here.
There will certainly be challenges ahead for Kraft as inflation due to the pandemic (e.g. increased shipping costs and plant closures) weighs on its profitability, but for long-term investors this should not be expected. not be a major concern. So now may be the time to invest in Kraft. In the first six months of 2021, sales of over $ 13 billion were up 1.6% from the same period last year. Profits of $ 543 million during the period were also a huge improvement over the loss of $ 1.3 million the company suffered a year ago. Kraft is optimistic about next year, anticipating that consumption levels will be high from pre-pandemic levels, and he believes that with its strong margins, it will continue to perform better.
Kraft is not in as bad a position as its low price-to-pound ratio suggests. Its food products are a staple not only in restaurants but also in homes around the world. And that can make action an ideal investment, regardless of the outlook for the pandemic. Plus, with a high-yielding dividend that pays 4.4%, investors have an incentive to buy and hold.
Although the company reduced its dividend in 2019, Kraft is now in a more solid position. Its free cash flow over the past 12 months totaled just under $ 4 billion, more than 40% more than the $ 2.8 billion generated at the time. The dividend now looks much more sustainable and can be a great source of income for long-term investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.