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7 Best Cheap Stocks to Buy for October

On average, the last quarter of the year has been the best for the markets since 1928. Of course, a probable tapering by the Federal Reserve could cause…

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This article was originally published by Investor Place

On average, the last quarter of the year has been the best for the markets since 1928. Of course, a probable tapering by the Federal Reserve could cause some jitters. But as the economy recovers, the markets will likely remain in an uptrend. Still, I would be cautiously optimistic. It makes sense to book profits on stocks that have surged and are trading at stretched valuations. Those funds can then be allocated to cheap stocks or value stocks.

Back in July, Morgan Stanley observed that, after the pandemic-driven meltdown, growth stocks have performed well in the ensuing market rally. However, the firm also noted that “economic strength and rising inflation will likely favor both value and cyclical stocks.”

Cyclical stocks have already seen some rally in the last few months. As such, this article will focus on cheap stocks in general and value stocks from the cyclical category. Further, we will use the price-earnings (P/E) ratio as a basic filter. All of the picks on this list trade at a forward P/E of less than 10. As markets look for value, these names could rally in the foreseeable future.

So, let’s take a deeper look into the fundamentals of these cheap stocks.

  • Costamare (NYSE:CMRE)
  • AT&T (NYSE:T)
  • Ford (NYSE:F)
  • Equinor (NYSE:EQNR)
  • British American Tobacco (NYSE:BTI)
  • Vale (NYSE:VALE)
  • TotalEnergies (NYSE:TTE)

Cheap Stocks to Buy: Costamare (CMRE)

Source: Pavel Kapysh / Shutterstock.com

Even after upside of 129% in the last 12 months, CMRE stock tops my list of cheap stocks to buy for October. The stock still trades at a forward P/E of 6.87 and offers investors a dividend yield of 2.92%.

Costamare is also poised for steady earnings with its robust contract backlog in the containership segment. With the economic recovery, its containership ship segment has witnessed a 450% increase in charter rates on a year-over-year (YOY) basis. As of late July, the company had contracted revenue of $3.3 billion and a remaining time charter duration of 4.3 years (Page 11).

This company has also diversified in the dry bulk segment and its timing has been favorable. The dry bulk index is at a multi-year high and Costamare will have a fleet of 37 dry bulk vessels by the end of 2021.

Of course, it’s worth noting that Costamare has a relatively high leverage, with net-debt-to-adjusted-EBITDA of 4.5 as of the second quarter. However, with an adjusted EBITDA interest coverage ratio at 6.19, debt servicing is likely to be smooth. At the same time, the company’s new vessels will add to its EBITDA and cash flow in the coming quarters.

Overall, CMRE stock is worth accumulating on declines. As the dry bulk segment impacts revenue and cash flows, the stock will likely trend higher.

AT&T (T)

Image of AT&T (T stock) logo on a gray storefront.Source: Jonathan Weiss/Shutterstock

At a forward P/E of 8.41, this pick of the cheap stocks looks like another quality name to buy for a sharp reversal. True, T stock might have disappointed income investors with the guidance of cutting dividends to half after the business demerger. However, I believe that the value unlocking from the demerger will more than offset the dividend cut.

It’s worth noting that, between 2016 and 2020, AT&T has invested $105 billion in the wireless and wireline segment. These investments will likely yield results in the coming years as 5G adoption accelerates. As a matter of fact, the company has already witnessed healthy subscriber additions in the wireless and fiber segment.

The outlook for the media division also seems positive. AT&T already has more than 67 million HBO MAX and HBO subscribers globally. Now, the company has guided for 70 million to 73 million subscribers by the end of 2021. The Warner Media and Discovery (NASDAQ:DISCA, NASDAQ:DISCK) deal will also create one of the largest investors in new content. Discovery President and CEO David Zaslav is targeting 400 million subscribers for the combined entity in the coming years.

Overall, the selling in T stock seems overdone. This company is positioned to deleverage in the coming years. Further, 5G will likely be a game-changer.

Cheap Stocks to Buy: Ford (F)

Ford (F) logo badge on grill of carSource: JuliusKielaitis / Shutterstock.com

Next up on this list of cheap stocks, F stock has been in an uptrend in the last 12 months. However, this name still looks like a bargain with a forward P/E of 9.09. Plus, with Ford making a big push into electric vehicles (EVs), the outlook seems bright.

In the United States, Ford reported 117% growth in EV sales for June 2021. Further, for the first half of 2021, the company sold 56,570 electric vehicles.

China is another big EV market for Ford. In Q2, the company opened 10 direct-to-customer electric vehicle storefronts. It revealed six new vehicles in the quarter as well. As these vehicles go into production and later the delivery phase, growth will likely accelerate.

It’s also worth noting that Ford had some $25 billion in cash as of Q2 as well as a total liquidity buffer of $41 billion. This will allow Ford ample flexibility to make big investments in the coming years.

Recently, the company announced a “mega campus” in Tennessee and twin battery plants in Kentucky. An investment of $11.4 billion is planned for the “production of new electric vehicles and advanced lithium-ion batteries” by 2025.

Finally, Europe is another big market for Ford. The company plans to go completely electric there by 2030. All in all, with an ambitious transformation plan and an exciting vehicle pipeline, F stock looks attractive.

Equinor (EQNR)

Illustrative editorial of EQUINOR (EQNR) website homepage, with EQUINOR logo visible on display screen. ISource: II.studio / Shutterstock.com

With oil trading near $80 per barrel, EQNR stock is an attractive pick among cheap stocks. Right now, the stock trades at a forward P/E of 9.52 and seems positioned for further upside.

A big reason to consider Equinor among the oil stocks are low break-even assets. In the Norwegian Continental Shelf (NCS), the break-even of assets discovered in the last two years is $30 per barrel. The company also expects production growth at a compound annual growth rate (CAGR) of 2% from the NCS over the next five years (Page 15).

In terms of cash flow potential, Equinor expects to deliver an average of $4.5 billion in annual free cash flow (FCF) over the next decade. This is with an assumption of $60 per barrel of oil. Clearly, the company’s assets have the potential to deliver robust FCF. This should ensure that EQNR stock is one of the better dividend growth stocks in the oil and gas sector.

Another point worth noting, however, is that Equinor plans to divert excess cash flows toward renewable energy. Over the next five years, the company plans for $23 billion in renewables investments (Page 28). The company also expects to deliver 40% reduction in net carbon intensity by 2035 (Page 55).

Cheap Stocks to Buy: British American Tobacco (BTI)

British American Tobacco (BTI) logo on a buildingSource: DutchMen / Shutterstock.com

BTI stock is another name that trades at a low multiple. Currently, this name has a forward P/E of 7.91. Additionally, the stock offers investors an extremely attractive dividend yield of 8.48%.

Similar to Altria (NYSE:MO), this company faces uncertainty related to e-cigarettes. In a recent statement, the company opined that these “innovative products may be potentially less harmful than traditional tobacco products.” Further confirmation of this from the U.S. Food and Drug Administration (FDA) could be a big upside catalyst.

Moreover, British American has already undertaken a business transformation. As of June, the company reported 16.1 million non-combustible product customers (Page 9). In the prior-year comparable period, the number of customers was 11.6 million. The company’s new category revenue growth for the same period was 50%. Clearly, growth seems to be gaining traction in this segment.

One last point to note, though, is that BTI’s cigarette business is still the cash cow. Strong cash flow will ensure that it can sustain the dividend. At the same time, the company has ample financial flexibility to invest in its non-combustible segment.

Vale (VALE)

the Vale (VALE) logo displayed on a mobile phone with the company's webpage in the backgroundSource: rafapress / Shutterstock.com

Next up on this list of cheap stocks, VALE stock seems like a screaming buy at a forward P/E of 2.88.

True, concerns related to the spill-over impact of the Evergrande crisis resulted in a sharp correction for the stock. Additionally, iron ore prices tumbled below $100 per ton as China pursued curbs for the steel industry. Plus, VALE stock was also recently jittery after 35 employees became trapped in a Canadian mine.

However, even with these factors, the correction seems overdone. Considering the valuation, the stock might be poised for a sharp rally. Additionally, VALE also offers a dividend of $2.27 with a yield of 15.95%.

For Q2 2021, Vale reported $11.2 billion in pro-forma adjusted EBITDA. Further, FCF for the period was a little over $6.5 billion. Additionally, Vale expects iron ore capacity at 343 metric tons for 2021. For the next year, the company expects capacity to increase to 400 metric tons, with a longer-term plan for 450 metric tons.

Finally, even if iron ore prices sink from current levels, Vale is positioned to deliver healthy cash flows. Dividends are therefore sustainable. It’s also worth noting that for Q2 2020, the company’s net debt was $6.3 billion. As of Q2 2021, net debt has declined to negative $738 million (Page 8). So, credit metrics have improved significantly as well.

Cheap Stocks to Buy: TotalEnergies (TTE)

Black oil barrel that reads "oil" on the side in a pool of oil with other barrelsSource: Shutterstock

In the last six months, TTE stock has been relatively sideways. Now a breakout on the upside seems imminent. But aside from being one the top cheap stocks, TTE is also attractive for income investors. Currently, it has a dividend yield of 6.53%.

TotalEnergies is another beneficiary of higher oil prices. For the first half of 2021, the company generated $13.1 billion in operating cash flows. Between 2022 and 2025, it also has plans for an annual investment of $13 billion to $15 billion toward maintaining and growing its activities.

The upstream segment is likely to fund these investments. Additionally, if oil remains firm, dividend growth seems likely. The company also plans to buyback $1.5 billion of its shares in Q4 2021. Aggressive share repurchases are likely to continue.

Lastly, though, it’s worth noting that TotalEnergies has made a significant shift toward renewables. In the coming years, 50% of its growth investments will be targeted at the development of new energies while the other 50% will be significantly focused on liquified natural gas (LNG).

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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Author: Faisal Humayun

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Economics

Edible Oil Prices Hit Record High As Food Inflation Treat Soars 

Edible Oil Prices Hit Record High As Food Inflation Treat Soars 

Prices of edible oils have been rising across the world. Palm oil, the world’s…

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Edible Oil Prices Hit Record High As Food Inflation Treat Soars 

Prices of edible oils have been rising across the world. Palm oil, the world’s most consumed vegetable oil, surged to a new record high, spreading concerns about persistent global food inflation

Malaysia’s palm oil futures soared more than 40% this year, while soybean oil is up more than 50%. Prices of canola oil are also at a record.  

Bloomberg notes the reason for the price surge is “because of the emergence of pent-up demand as economies reopen after COVID, the outlook for more use in renewable fuels as energy prices soar and production problems in major growers.” 

“Palm oil is not only riding on tight supply, which continues to sustain higher prices, but is also getting broader external support from energy markets,” said Sathia Varqa, owner of Palm Oil Analytics in Singapore. 

Production of palm oil in Malaysia has fallen this year because of a foreign worker freeze, exacerbating the country’s labor shortages. The Malaysian Palm Oil Board reported that production in the first nine months of the year was the weakest since 2017. 

“There are no stopping prices from going higher” until policies are implemented that are likely to cool the commodity market, such as higher interest rates,” Varqa said.

This means that the weight of vegetable oils in the UN’s Food and Agriculture Organization’s FAO Food Price Index will continue to pressure global food prices higher. Last month, the index hit a new decade high, which includes a basket of food commodities (such as cereals, vegetable oils, dairy, meat, and sugar). 

Global food prices surging to decades high is no laughing matter but an ominous sign for emerging market economies where households allocate more of their budgets to food. Rising food prices can cause discontent with governments and spark social unrest. SocGen’s Albert Edwards first warned about this right before the pandemic began. 

Tyler Durden
Sun, 10/24/2021 – 08:45




Author: Tyler Durden

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Economics

Visualizing The World’s Biggest Real Estate Bubbles In 2021

Visualizing The World’s Biggest Real Estate Bubbles In 2021

Identifying real estate bubbles is a tricky business. After all, as Visual Capitalist’s…

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Visualizing The World’s Biggest Real Estate Bubbles In 2021

Identifying real estate bubbles is a tricky business. After all, as Visual Capitalist’s Nick Routley notes, even though many of us “know a bubble when we see it”, we don’t have tangible proof of a bubble until it actually bursts.

And by then, it’s too late.

The map above, based on data from the Real Estate Bubble Index by UBS, serves as an early warning system, evaluating 25 global cities and scoring them based on their bubble risk.

Reading the Signs

Bubbles are hard to distinguish in real-time as investors must judge whether a market’s pricing accurately reflects what will happen in the future. Even so, there are some signs to watch out for.

As one example, a decoupling of prices from local incomes and rents is a common red flag. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.

With this in mind, which global markets are exhibiting the most bubble risk?

The Geography of Real Estate Bubbles

Europe is home to a number of cities that have extreme bubble risk, with Frankfurt topping the list this year. Germany’s financial hub has seen real home prices rise by 10% per year on average since 2016—the highest rate of all cities evaluated.

Two Canadian cities also find themselves in bubble territory: Toronto and Vancouver. In the former, nearly 30% of purchases in 2021 went to buyers with multiple properties, showing that real estate investment is alive and well. Despite efforts to cool down these hot urban markets, Canadian markets have rebounded and continued their march upward. In fact, over the past three decades, residential home prices in Canada grew at the fastest rates in the G7.

Despite civil unrest and unease over new policies, Hong Kong still has the second highest score in this index. Meanwhile, Dubai is listed as “undervalued” and is the only city in the index with a negative score. Residential prices have trended down for the past six years and are now down nearly 40% from 2014 levels.

Note: The Real Estate Bubble Index does not currently include cities in Mainland China.

Trending Ever Upward

Overheated markets are nothing new, though the COVID-19 pandemic has changed the dynamic of real estate markets.

For years, house price appreciation in city centers was all but guaranteed as construction boomed and people were eager to live an urban lifestyle. Remote work options and office downsizing is changing the value equation for many, and as a result, housing prices in non-urban areas increased faster than in cities for the first time since the 1990s.

Even so, these changing priorities haven’t deflated the real estate market in the world’s global cities. Below are growth rates for 2021 so far, and how that compares to the last five years.

Overall, prices have been trending upward almost everywhere. All but four of the cities above—Milan, Paris, New York, and San Francisco—have had positive growth year-on-year.

Even as real estate bubbles continue to grow, there is an element of uncertainty. Debt-to-income ratios continue to rise, and lending standards, which were relaxed during the pandemic, are tightening once again. Add in the societal shifts occurring right now, and predicting the future of these markets becomes more difficult.

In the short term, we may see what UBS calls “the era of urban outperformance” come to an end.

Tyler Durden
Sat, 10/23/2021 – 22:00

Author: Tyler Durden

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Precious Metals

JPMorgan Turns Positive On Crypto, Sees “A Bullish Outlook For Bitcoin Into Year-End”

JPMorgan Turns Positive On Crypto, Sees "A Bullish Outlook For Bitcoin Into Year-End"

The launch of the first Bitcoin ETF, BITO, even if based…

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JPMorgan Turns Positive On Crypto, Sees “A Bullish Outlook For Bitcoin Into Year-End”

The launch of the first Bitcoin ETF, BITO, even if based on futures, was the culmination of seven years of anticipation for bitcoin bulls and it certainly did not disappoint: the leaks and the actual news propelled the cryptocurrency to a new all time high above $66,000 (with some profit-taking to follow).

Yet despite the clear impact on the price of bitcoin, which has more than doubled from its July lows, not everyone is uniformly bullish on the impact of the first bitcoin ETF. As JPM’s Nick Panigirtzoglou writes in his latest widely-read Flows and Liquidity note, “the bulls are seeing this ETF as a new investment vehicle that would open the avenue for fresh capital to enter bitcoin markets” while the bears “are seeing the new ETF as only incremental addition to an already crowded space of bitcoin investment vehicles including GBTC in the US, ETFs listed in Canada since last February which have been already accessible to US investors, regulated (CME) and unregulated (offshore) futures, and plenty of direct investment options using digital wallets via Coinbase, Square, Paypal, Robinhood etc.”

For its part, JPM – not surprisingly – falls into the skeptics’ camp (we say not surprisingly because for much of 2021, the largest US bank has been publishing bearish note after note, as we have repeatedly detailed, urging clients to ignore the largest cryptocurrency and if anything, to take profits. In retrospect, this has been a catastrophic recommendation for anyone who followed it). 

According to the JPMorgan quant, the launch of BITO by itself will not bring significantly more fresh capital into bitcoin due to “the multitude of investment choices bitcoin investors already have. If the launch of the Purpose Bitcoin ETF (BTCC) last February is a guide, as seen in Figure 1, the initial hype with BITO could fade after a week.”

Here, once again, JPM’s superficial “analytical” approach shines through and we are confident that Panigirtzoglou, who has been dead wrong about bitcoin for the past year, will once again be wrong in his take on BITO. Instead, for a much more nuanced – and accurate – view of the daily happenings in bitcoin ETF land we recommend Bloomberg’s inhouse ETF expert, Eric Balchunas who points to what is clearly an unprecedented, and rising demand for crypto ETF exposure (one can only imagine what will happen when Gensler greenlights an ETF based on the actual product not spread-draining and self-cannibalizing futures). Indeed, as Balchunas pointed out on Thursday, BITO – which is “maybe too popular for its own good”, has already “used up 2/3 of its total bitcoin futures position limits, only about 1,700 contracts ($600m) left bf it hits 5k total. Could hit in next day or two.”

But what about the ramp in bitcoin prices in recent weeks? Surely the anticipation of the ETF launch was the main catalyst? Well, according to JPM the answer is again no, and instead the JPM strategist writes that “while we accept that bitcoin momentum has shifted steeply upwards since the end of September, we are not convinced the anticipation of BITO’s launch was the main reason.”

Instead, as the Greek quant explained before (see “JPMorgan: Institutions Are Rotating Out Of Gold Into Bitcoin As A Better Inflation Hedge“) he believes that rising inflation concerns among investors “has renewed interest in inflation hedges in general, including the use of bitcoin as such a hedge.”

As he further explains, “Bitcoin’s allure as an inflation hedge has been strengthened by the failure of gold to respond in recent weeks to heightened concerns over inflation, behaving more as a real rate proxy rather than inflation hedge.” This is actually correct, and as we have shown previously gold indeed correlates much more closely to real rates that nominals, although in recent months, even real rates suggest that gold prices should be notably higher, perhaps confirming ongoing precious metal price suppression of the kind we have previously documented to be emanating from the BIS.

In any case, JPM also updates a chart we showed previously, the shift away from gold ETFs into bitcoin funds, which was very intense  uring most of Q4 2020 and the beginning of 2021, has gathered pace in recent weeks.

In turn, by putting upward pressure on bitcoin prices, JPM argues that this shift away from gold ETFs into bitcoin funds likely triggered mean reversion  across bitcoin futures investors which had reached very oversold conditions by the end of September. This is shown in Figure 3 via the bank’s position proxy based on CME ethereum futures. Looking at Figure 3, JPMorgan now claims that “there had been a steep decline in our bitcoin futures position proxy” which pointed to oversold conditions towards the end of September triggering a bitcoin rebound. This rebound appears to have accelerated over the past days ahead of BITO’s launch with the blue line in Figure 1 fully recapturing all the previous months’ unwinding. In other words, the price ramp into the bitcoin ETF launch was just a coincidence. Yeah right, whatever.

Where JPM is however right, is in its assumption that a significant component of bitcoin futures positioning encompasses momentum traders such as CTAs and quantitative crypto funds. Previously, the bank had argued that the failure of bitcoin to break above the $60k threshold would see momentum signals turn mechanically more bearish and induce further position unwinds; it also claims this has likely been a significant factor in the correction last May in pushing CTAs and other momentum-based investors towards cutting positions. At the end of July, these momentum signals approached oversold territory at the end of July and have been rising since then in reversal to last May-July dynamics. The shor-tterm momentum signal has exceeded 1.5x stdevs, a z-score that we would typically characterize as overbought for other asset classes but still below the exuberant momentum levels of January 2021.

So with both With Figure 3 and Figure 4 pointing to exhaustion of short covering and more crowded bitcoin positioning in futures, Panigirtzoglou sees bitcoin relying more on other flows outside futures to sustain its upswing. To him, this elevates the importance of monitoring Figure 2, i.e. the importance for the current shift away from gold ETFs into bitcoin funds to continue for the current bitcoin upswing to be sustained.

In our opinion, the main problem for bitcoin over the previous two quarters had been the absence of significantly more fresh capital as shown in Figure 5 and Figure 6. Figure 5 shows our estimate of retail and institutional flows into bitcoin with an overall downshift in Q2 and Q3 of this year. Similarly, Figure 6 shows that the previous steepening in the pace of unique bitcoin wallet creation has largely normalized returning to pre-Q4 2020 norms, again implying an absence of significantly more fresh capital entering bitcoin.

And yet, despite this latest (erroneous) attempt to downplay the impact of the bitcoin ETF, which JPMorgan says “is unlikely to trigger a new phase of significantly more fresh capital entering bitcoin”, by now too many JPM clients are invested in the crypto asset as Jamie Dimon (whose opinions on bitcoin have been an absolute disaster for anyone who traded on them) recently admitted, and so while tactically staying bearish on the impact of BITO, not even JPM’s house crypto “expert” can objective stay bearish in general, and as he concludes, “istead, we believe the perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into bitcoin funds since September.”

So with Bitcoin now perceived as the best inflation hedge among non-traditional assets, Pnaigirtzoglou concludes that this gold to bitcoin flow shift “remains intact supporting a bullish outlook for bitcoin into year-end.”

 

Tyler Durden
Sat, 10/23/2021 – 19:10


Author: Tyler Durden

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