3 stocks you’ll be glad you bought at these prices

By | December 22, 2023

trader investor woman shares markets exchange buy sell -1193x800-d364447

trader investor woman shares markets exchange buy sell -1193×800-d364447

As the year draws to a close and we get ready to celebrate the holidays, looking back at the stock market’s recovery will undoubtedly bring extra joy to investors’ faces. The S&P500 This year they are up almost 23% after falling more than 19% in 2022. However, this does not mean that all stocks rose in the same direction.

But these three stocks have underperformed the overall market. Of course, that alone doesn’t make them worth purchasing. Let’s find out why I think these stocks will keep a smile on your face for many holiday seasons to come.

Person looking at a phone and two computers.Person looking at a phone and two computers.

Image source: Getty Images.

1. Real estate income

Real estate income (NYSE:O) has seriously underperformed the stock market this year. Shares are down 5.2% compared to a 24.9% gain for the S&P 500. Still, this real estate investment trust (REIT), which must pay out at least 90% of its taxable income as dividends, remains a good choice for income oriented investors.

Realty Income collects approximately 83% of rent from retail tenants. That may cause some anxiety, given the threat of online shopping. But management is carefully assessing the situation and leasing to companies with a strong omnichannel presence or minimal online competition. These include grocery, dollar, convenience, drug and home improvement stores.

Additionally, the company has announced the purchase of $9.3 billion Geest Real Estate Capital (NYSE: SRC) will expand and diversify its real estate holdings.

Meanwhile, the existing portfolio is performing well. The occupancy rate remains high: 98.8% in the most recent quarter. And it could get a 6.9% increase on payments for expiring leases.

Realty Income, which pays monthly dividends, has increased them multiple times for more than 25 years. This includes the board’s recent decision to increase the January payment from $0.256 to $0.2565. The stock currently offers a dividend yield of 5.4%, compared to 1.5% for the S&P 500.

2. Etsy

Etsy (NASDAQ: ETSY), founded nearly two decades ago, became popular during the early days of the pandemic, when many people were staying at home. The stock exploded in 2020, rising more than 300%. Since then, shares have fallen about 55%.

But the online marketplace, which connects makers of creative goods with buyers, has performed well this year. The number of active buyers on the Etsy site grew by 4% to 92 million. Gross merchandise sales remained flat, but management attributed this largely to a general economy in which people were hit by higher prices. Now that inflation has decreased, I think this will improve.

During the quarter, Etsy’s revenue increased 7% to $636.3 million. It’s hard to compare profits since the company took a $1 billion impairment charge a year ago. However, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 8.6% to $182.2 million.

The stock, with a price-to-sales ratio (P/S) of 4.1, is trading at a more attractive valuation. Earlier this year the P/S multiple was around 8.

3. Purpose

Goal (NYSE: TGT) has made a number of missteps, including holding too much inventory in the discretionary goods category. Investors punished the retailer’s shares, which have fallen more than 7% this year.

However, management has taken steps to address the problem, including inventory discounts to clear shelves of unwanted items and to stock everyday items. In the third fiscal quarter ended Oct. 28, inventory was down 14% from last year. And while discretionary categories (such as apparel and home furnishings) continue to struggle, Target’s frequency categories (such as beauty, housewares, food and beverage) are doing well.

The better stock position has led to an improved margin. Target’s gross margin increased from 24.7% to 27.4%, and its operating margin rose 1.3 percentage points to 5.2%.

Same-store sales are under pressure this year and fell 4.9% in the quarter. However, I think this will improve as a better economic environment will lead to higher discretionary spending. Target’s shares are selling at a price-to-earnings (P/E) ratio of 18, compared to more than 30 earlier this year.

These three stocks offer attractive opportunities. Realty Income should appeal to income investors. Etsy sells at a more reasonable price as the company continues to grow. And Target, after missteps, has moved to improve inventory and margins, and sales growth should come from a healthier consumer.

Should you invest €1,000 in real estate income now?

Consider the following before purchasing shares in Realty Income:

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy, Realty Income, and Target. The Motley Fool has a disclosure policy.

3 Stocks You’ll Be Glad You Bought at These Prices was originally published by The Motley Fool

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