Looking for bargains after the market selloff? Keep reading

 

No one likes to witness a market correction. Watching the overall market fall into correction territory can unnerve even the most seasoned investor, but corrections are normal, and many analysts would argue they are even healthy for a long-term bull market.

While it can be frustrating to watch your portfolio shrink in value during a sell off, a smart investor will accept that pullbacks are necessary, and instead of pulling out money in a panic, will instead use the selloff as an opportunity to pick up some quality stocks at a discount to their recent price.

Make no mistake about it, the overall economy remains on solid ground. Unemployment is low, and wages are finally starting to rise. This is good news for the overall economy, but the market reacted negatively to wage growth out of fear that it would prompt the Federal Reserve to lift interest rates at a faster pace than previously expected.

Of course, higher interest rates will have an impact on the stock market, as money flows out of stocks and back into more traditional fixed-income assets as rates rise, but as long as the overall economic conditions remain intact, there is no reason to expect the market to all of a sudden switch to bearish.

In my view, economic conditions remain upbeat, and corporate earnings should get a nice boost from the recent tax reform that lowered corporate earnings, and allowed for a tax holiday on money brought back to the U.S. from foreign operations.

If you are afraid of the market after the last week’s volatility, perhaps you should sit on the sidelines and wait for calmer waters, but if you want to use the selloff to pick up some high-quality stocks at a discount to their recent level, here are five stocks that have come down in value and are very attractive at their current levels.

Apple

Tech giant Apple (AAPL) traded lower with the overall market during the selloff, but the stock held up better than most, and the recent pullback actually presents a great opportunity for investors that want to jump into the stock. The recent drop in share price lowered the stock’s P/E to just 16.7, which is very attractive when you consider that the company is expected to grow its earnings by 25.4% during the current year, and on average by 11.7% over the next five years. The stock did get hit after the company’s last quarterly report, with iPhone sales disappointing, but earnings and sales were both better than expected, which will keep traders interested. AAPL is trading at $162.90, while the 27 analysts that cover the stock have an average price target of $189.43, which suggests shares have 16.3% upside potential.

aapl180213

Chart courtesy of www.stockcharts.com

Morgan Stanley

The recent market selloff was driven by investor fear that the Federal Reserve would start to lift interest rates quicker than expected. While higher interest rates will have a negative impact on some market sectors, higher rates are generally a good thing for the financial sector. As the Federal Reserve allowed rates to rise in 2017, financial stocks were very strong, with shares of Morgan Stanley (MS) enjoying big gains during the latter part of the year. It is not surprising that after such a strong run that the stock would selloff when the overall market corrected, but the important thing to remember is that the overall economy is strong, and higher rates will benefit the company, and sector as a whole. The stock had become a bit pricey after its 2017 rally, but the recent pullback creates a favorable buying opportunity, as shares are now trading with a trailing P/E of 17.1, with earnings forecast to rise 25.8% during the current year, and by 20.6% on average over the next five years. After the pullback, MS is currently trading at $52.94, and analysts have an average price target of $58.33 on the stock.

ms180213

Chart courtesy of www.stockcharts.com

American Express

A strong underlying economy, with low unemployment and rising wages is the perfect scenario for payment processors like American Express (AXP). More people are working, and making higher wages, which leads to increased consumer spending. Over the last five years, American Express has only managed to grow earnings by 3.6% per annum, but analysts see that growth accelerating, with a forecast average annual growth rate of 10.0% over the next five years, and 21.3% for the current year. The strong growth numbers, in tandem with a P/E of 31 makes the stock attractive. While a P/E of 31 seems a bit high on the surface, it is favorable when compared against the company’s peers. Visa (V) has a P/E of 39, and MasterCard’s (MA) valuation is even higher, with a P/E of 46.3. When the market starts to regain its footing, and investors look to payment processors as a way to capitalize on low unemployment and higher wages, AXP will stand out as the credit card processor with the lowest valuation. AXP is trading at $93.24, and analysts have an average price target of $108.31 on the stock.

axp180213

Chart courtesy of www.stockcharts.com

Carnival Corp.

Travel and tourism stocks obviously fare better when the overall economy is improving. Low unemployment and higher wages result in increased discretionary income, some of which will certainly be spent on travel. Cruise operator Carnival Corp. (CCL) has done a fantastic job growing earnings in recent years, with profits rising 54.9% per annum over the last five years, and analysts expect to see the company grow profits by 14.6% on average over the next five years. Of course, if wages continue to rise, those estimates could be understated, as more and more money is spent on tourism. The stock took a little hit during the selloff, but held up better than most. With the recent pullback, CCL shares now trade with a trailing P/E of 19.1, and with earnings forecast to grow annually in the double-digits moving forward, the stock looks like a great value at its current price. CCL is currently trading at $68.50, and analysts have an average price target of $76.92 on the stock.

ccl180213

Chart courtesy of www.stockcharts.com

Delta Airlines

Airline operator Delta Airlines (DAL) is another company that should benefit from increased consumer spending as a result of low unemployment and higher wages. The stock is sensitive to oil prices, which have risen in recent months, but most analysts believe oil will not rise too much from its current levels barring a huge change in global output. Delta stock sold off with the market correction, and with the recent selling, the stock now trades with a P/E of just 10.5, and analysts expect the company to grow its earnings on average by 12.1% over the next five years, and 31.0% during the current year. As the market firms, and investors look for sectors that stand to gain from a strong jobs market, travel and tourism stocks will be among the top stocks to choose from, and DAL’s current valuation will attract a lot of attention. DAL currently trades at $51.82, with an average price target of $71.46.

dal180213

Chart courtesy of www.stockcharts.com

Symbols: AAPL AXP CCL DAL MS
Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

You May Also Like