3 Unstoppable Stocks Trading at a Bargain Right Now

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Warren Buffett's mentor Benjamin Graham described the market as a voting machine in the short run and a weighing machine in the long run.

To this end, eBay (NASDAQ:EBAY), Qualcomm (NASDAQ:QCOM), and Verizon (NYSE:VZ)appear to have taken on more “weight” recently by increasing revenue and income growth rates. 

However, this has not led to significant valuation increases, meaning investors may want to look at these value stocks before they receive more investor “votes.”

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1. eBay

The e-commerce boom appeared to skip eBay. In past years, high listing fees, a difficult-to-use website, and negligible growth soured investors on the online auction pioneer.

However, the attitude has shifted since the former head of Walmart eCommerce and Sam's Club Jamie Iannone returned to the company last year. In the first-quarter 2021 earnings call, Iannone mentioned that he has taken steps to improve efficiency such as shortening the listing process, adding QR coding for pickups, and consolidating payment and collections under its managed payments system.

As a result, the stock that reported 1% revenue growth in 2019 has experienced a dramatic shift. Revenue growth increased to 19% in 2020 and 42% in the first quarter of 2021.

Consequently, eBay earned $569 million in GAAP net income in Q1 and reported free cash flow of $855 million. This has allowed the company to return $414 million to shareholders in both dividends and share buybacks.

Despite stock price growth of almost 50%, investors have not voted for eBay in large numbers. Its P/E ratio stands at around 15. That comes in well below other established e-commerce peers such as Amazon and Walmart.

EBAY Chart
DATA BY YCHARTS.

Indeed, e-commerce performed well across the board in 2020. Moreover, eBay's tamping down of expectations for the second half of 2021 may not bolster investor confidence. Nonetheless, if Iannone can bring the same level of success to eBay that he achieved at Walmart, eBay could easily become weightier over time.

2. Qualcomm

Like eBay, Qualcomm has become underappreciated by the market. Though it derives an increasing amount of its revenue from the Internet of Things and automotive applications, its dominance of the 5G market serves as its primary revenue source.

Grand View Research forecasts a compound annual growth rate (CAGR) of 69% in the smartphone chipset market through 2028. This factor plays into Qualcomm's dominance. Though companies like Apple hope to challenge Qualcomm, those who want 5G speeds will have to buy a product with a Qualcomm chip for now.

Nonetheless, since Apple released its first 5G iPhone last fall, Qualcomm's growth has approximated Grand View's estimates. For the two quarters of fiscal 2021, revenue increased 57% compared to the first six months of fiscal 2020. GAAP net income climbed by 203% over the same period due to lower growth in operating expenses and increased investment income.

This helped the company produce about $5.1 billion in free cash flow during the first six months of the fiscal year. Consequently, Qualcomm returned more than $3.4 billion to shareholders over that period.

Additionally, though Qualcomm's stock price increased 70% over the last year, the stock trades at only about 19 times earnings. Both AMD and NVIDIA command massively higher valuations.

QCOM Chart
DATA BY YCHARTS.

Qualcomm continues to face challenges. It constantly fights legal and competitive challenges over its alleged monopoly power. Also, peers such as Apple work to develop a competing chipset. Still, with revenue increases exceeding 50%, a 19 P/E ratio seems low for such a potentially lucrative opportunity.

3. Verizon

Part of the demand for Qualcomm's chips stems from the desire to benefit from Verizon's upgraded 5G network. It is one of only three companies to build such a network in the U.S., and the enormous cost of such a network makes further entrants unlikely.

Additionally, investors have good reason to trust Verizon. It invested over $45 billion in purchases of radio spectrum, more than doubling its holdings of mid-band spectrum. This amounts to wireless real estate that will allow Verizon to offer faster service than its 5G Nationwide service offers.

5G has also created a network-as-a-service business that did not exist before. To this end, Verizon now helps to support Amazon's edge computing and boosts Honda‘s autonomous driving systems.

Admittedly in some respects, Verizon appears cheap for a reason. First-quarter revenue increased by only 4% from last year's levels after falling last year. During the same period, net income rose by 25% on the slow growth of operating expenses and income from noncore sources. Nonetheless, 2020 net income dropped by 7% from 2019 levels.

Moreover, buying spectrum added $43 billion in debt over the last two quarters to cover spectrum purchase costs. Now, it holds $137.4 billion in debt versus having a value of $72.7 billion in equity.

Nonetheless, it generated $5.2 billion in free cash flow in the first quarter alone. This allowed the company to pay $1.1 billion in interest and $2.6 billion in dividend payments. Its dividend now yields about 4.3% in cash returns. Additionally, Verizon stock only grew by about 5% over the last year, making dividends a significant part of the stockholder returns.

VZ Chart
DATA BY YCHARTS.

Verizon currently sells for about 13 times earnings, a level in line with historical averages. Still, payouts have risen every year since 2006. If the network-as-a-service business can move Verizon beyond a slow-growth mode, investors could vote in Verizon stock for more than just the dividend.

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