Since July 16, volatility in the markets has increased. Stocks have entered correction territory, with the Nasdaq 100 down 13% from its peak. In light of the recent pullback, it’s time to start preparing a watchlist of the best bargain stocks to buy.
Based on their earnings reports, these bargain stocks are hitting new heights in operating performance. With the economy still in great shape and expectations growing for rate cuts starting in September, they have more upside.
Looking at their results, this discount to the market is unwarranted. In Q2 2024, each reported revenue growth of at least 8%. Even better, earnings growth was stronger, above 10%. Yet, despite the impressive performance, each stock trades below 14 times forward earnings, which is a 25% discount to the market — meaning they are substantially undervalued. As long as these three best bargain stocks continue delivering impressive results, expect their P/E multiple to expand and close the valuation gap.
Celestica (CLS)
Celestica (NYSE:CLS) operates in two reportable segments: Advanced Technology Solutions and Connectivity & Cloud Solutions. The latter is seeing tremendous growth due to hyperscalers’ investments in data center infrastructure. Celestica is a key enabler of this investment spending. For instance, it makes TPU servers for Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) subsidiary Google and networking equipment for other hyperscalers.
Based on Q2 performance, Celestica is one of the best bargain stocks to buy. It exceeded estimates by $140 million, delivering revenues of $2.39 billion, an increase of 23% year-over-year (YOY). Adjusted EPS was $0.91, a significant jump from the $0.55 reported in Q2 2023. While ATS revenues declined 11%, the CCS segment compensated for the shortfall.
Due to growing demand from hyperscaler customers, CCS revenues surged 51% YOY. What’s more, segment margins improved from 6.0% in Q2 2023 to 7.2%. This strength was driven by robust demand for its Hardware Platform Solutions.
Management reiterated that the company was well-positioned to capitalize on opportunities in several markets. In line with this view, they raised full-year revenue guidance from $9.1 billion to $9.45 billion. They also increased adjusted EPS guidance from $3.30 to $3.62. Based on this guidance, CLS has a forward P/E of 13, making it a bargain opportunity.
PayPal (PYPL)
This payment giant offers substantial upside, particularly after delivering solid Q2 results. New CEO Alex Chriss’ plan to revive profitable growth is working. With growth accelerating, PayPal (NASDAQ:PYPL) could be one of the best bargain stocks in the market.
Regarding valuation, PYPL trades at a steep discount to the market and other fintech peers. In Q2 2024 results, management issued guidance predicting low to mid-teens non-GAAP EPS growth. In 2023, it earned $5.10 per share, so this guidance translates into non-GAAP EPS of at least $5.6 this year. Therefore, PYPL stock is trading at 11 times FY2024 earnings.
That valuation is too cheap for a company that has turned around. The biggest evidence here is the growth in transaction margin dollars. In Q1, the metric was $3.5 billion, growing 4% YOY. This growth rate accelerated in Q2 to 8% YOY, with transaction margin dollars rising to $3.6 billion.
Given the acceleration in growth, PYPL stock deserves a higher multiple. Management recognized the discount and increased the buyback from $5 billion to $6 billion. By focusing on price-to-value at Braintree and reinvigorating PayPal and Venmo through campaigns, this company can deliver solid transaction margin dollar growth from now on.
Cigna (CI)
Cigna (NYSE:CI) operates two main segments; Cigna Healthcare and Evernorth Health Services. Cigna Healthcare is the insurance segment. On the other hand, Evernorth Health Services includes the pharmacy benefits manager, specialty pharmacy and healthcare services.
Today, Cigna is one of the best bargain stocks due to its entrenched position in the U.S. healthcare system and bargain multiple. It is one of the top three U.S. pharmacy benefits managers and insurance companies alongside peers UnitedHealth (NYSE:UNH) and CVS Health (NYSE:CVS). This oligopolistic dynamic has led to a very profitable business exposed to the secular healthcare and demographics theme.
Going forward, Evernorth, which accounts for 60% of earnings, will be the main growth driver. In Q2 2024, pharmacy benefit services and specialty revenues grew 41% and 18% YOY, respectively. This brought Evernorth Health Services revenue growth to 30%, increasing total revenue by 25% to $60.5 billion. Additionally, adjusted EPS increased from $6.13 in the prior year quarter to $6.72, representing 10% growth.
For FY2024, Cigna expects adjusted EPS of at least $28.40, meaning CI stock is at 12 times forward earnings. That’s a bargain considering the growth opportunities ahead. Accredo, its specialty business, which offers specialty drugs for rare and complex diseases, has a significant growth runway. Also, management thinks biosimilars will be an important growth opportunity over the next decade.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a long position in GOOG.