The stock market continues to climb, with the S&P 500 notching fresh 52-week highs in July. Despite further rate hikes from the Federal Reserve, investors seem confident that the economy will be able to handle the tighter monetary policy. There’s certainly the possibility that the Fed will be able to achieve a soft landing and keep the economy and market on a favorable trajectory. However, with the market up this far this quickly, risk has increased.
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Fortunately, there are still some reasonably priced stocks out there that have declined over the past few months. These five stocks to buy now are trading near their recent lows and offer investors genuine value in an otherwise pricey market:
— TC Energy Corp. (ticker: TRP)
— Discover Financial Services (DFS)
— Omnicom Group Inc. (OMC)
— Bruker Corp. (BRKR)
— Epam Systems Inc. (EPAM)
TC Energy Corp. (TRP)
TC Energy is one of Canada’s largest energy companies and operates in the midstream portion of the industry, which involves processing, storing and transporting hydrocarbons. The company has gone through an underwhelming period, with the stock dramatically underperforming both the broader market and the energy sector in recent months. Indeed, TC Energy shares dropped by about 15% in July, leaving them near seven-year lows.
It appears that management has gotten the message that the market is frustrated with the firm’s current direction. On July 27, TC’s leadership announced a bold plan to split the company in two. Specifically, TC will spin off its liquids business into a separate enterprise. This will give investors direct access to TC’s lucrative but slow-growing liquids operations, along with a separate firm that holds TC’s faster-growing and more ESG-friendly gas, power and carbon capture assets.
By splitting the business, theoretically, TRP shareholders should benefit as each business can be valued more fully by the market.
Discover Financial Services (DFS)
Discover is a credit card issuer, and it also operates a specialty banking operation. Unlike several of the other card issuers, Discover is a lending company. It takes on credit risk, rather than just being an intermediary payments network that charges transaction fees. This means that Discover operates as a high-interest lender, and investors tend to price Discover stock at a low valuation to reflect that risk.
However, the present valuation is inexplicably low. Discover shares fell sharply after the most recent earnings report, pushing the stock down to just 7.3 times trailing earnings. Discover will take more credit losses in a recession, but the company earns a gargantuan 11% net interest margin on its loan book. This provides far more than enough insulation; even in the 2008 financial crisis, the delinquency rate on U.S. credit card loans industry-wide peaked at just 7%. Long story short, Discover shares have sold off far too steeply and are priced for a massive recession. Any sort of soft landing scenario should lead to dramatic upside for DFS stock.
[READ: 15 Best Dividend Stocks to Buy Now]
Omnicom Group Inc. (OMC)
Omnicom is one of the world’s leading multinational advertising firms. It provides publicity and public relations services, covering everything from traditional and digital marketing to handling PR and offering brand and marketing consulting services. Advertising stocks have generally underperformed in recent years as investors have fretted about how the transition to digital advertising would affect the industry. And that’s a fair point: Omnicom has seen its annual revenues remain nearly unchanged over the past decade.
But earnings per share are up as the company has bought back stock and also managed to increase its profit margins. Omnicom shares recently sold off on an earnings report that didn’t quite hit the market’s expectations. That said, Omnicom should be given credit because it is investing heavily in its artificial intelligence and information technology solutions that will help it maintain and win large client contracts in the coming years. After the recent dip, shares now go for just 11.7 times forward earnings.
Bruker Corp. (BRKR)
Bruker is a company that primarily makes laboratory tools and equipment. For example, it is known for making high-powered nuclear magnetic resonance imaging equipment. These spectrometer machines can cost millions of dollars each, and Bruker has held a virtual monopoly on the high end of the market since Agilent Technologies Inc. (A) exited the industry.
Bruker shares have dipped about 15% over the past quarter around worries over potential funding issues at the universities that tend to be key customers for Bruker equipment. That dip, however, creates an interesting situation. That’s because Bruker has another business — superconductors and advanced materials for renewable energy and health care — that accounts for about 10% of the company’s total revenues. In July, a team at the Korean Institute of Science and Technology announced that it had developed the first room-temperature, ambient-pressure superconductor. There has been great debate over this claim; regardless, it is shining a light on the superconductor industry. Bruker, as one of the largest players with existing profitable commercial superconductor operations, could benefit from this publicity.
Epam Systems Inc. (EPAM)
Epam is a consulting company that found its edge by outsourcing high-skill IT work to emerging markets. This is a form of labor arbitrage. Epam’s strategy of hiring affordable engineers in countries like Poland while charging high prices for services has made investors a fortune, and shares are up more than 16-fold since its 2012 listing. That said, Epam stock is now down by more than 60% from its all-time highs.
This happened for two reasons. First, it relied heavily on Ukrainian and Russian labor and thus was heavily disrupted by Russia’s invasion of Ukraine. The company is shifting its workforce toward other markets, but this takes time to fully play out. Second, the IT spending environment is muted at the moment, which has led to lower revenue growth across the industry. However, the current interest in AI technologies should lead to a new wave of spending with IT contractors as Fortune 500 companies start to use AI for their own workflows. Big picture: Epam has grown earnings at a double-digit compounded rate for many years and shares used to sell at a huge earnings multiple. Now trading for about 21 times 2024 earnings, EPAM stock looks cheap by historical standards.
[READ: AI in Health Care: 8 Best Stocks to Buy]
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5 of the Best Stocks to Buy Now originally appeared on usnews.com
Update 08/01/23: This story was published at an earlier date and has been updated with new information.
