Market Sell-Off: 3 Stocks at Their Cheapest Valuations in Years

Market Sell-Off: 3 Stocks at Their Cheapest Valuations in Years

It’s official: The S&P 500 is in a bear market — defined as a drop of 20% or more in the index. Since 1950, there have been 11 bear markets in the S&P 500, lasting about one year on average from start to finish.

Sell-offs can present great opportunities for investors to buy beaten-down companies at cheap prices. Here are three stocks trading near their lowest values ​​in five years or more.

Image source: Getty Images.

1. PayPal hasn’t been this cheap ever

PayPal (PYPL 2.35%) operates a massive payments network connecting 392 million consumers with 34 million merchants worldwide.

Over two years, its total payment volume grew 30% compounded annually and surpassed $1 trillion for the first time. Investors were excited and had high expectations, pricing the stock between 50 to 75 times earnings measured by the price-to-earnings ratio (P/E) for much of last year.

Things took a negative turn when managing lowered earnings projections for this year. Last year, the payments giant forecast revenue growth of 18%, then trimmed this estimate to between 15% and 17% during its February earnings call. It further reduced this estimate in April to between 11% and 13%.

Investors have sold off the stock in response, and its P/E ratio is 24.3, the lowest since PayPal re-entered the public markets in 2015.

PYPL PE Ratio Chart

PYPL PE Ratio data by YCharts

While PayPal could face short-term pains from a potentially slowing economy, as reflected in its forecasts, it’s still hadsolid long-term growth and is one stock I’ll be watching closely in the coming months.

2. Goldman Sachs hasn’t been this cheap since 2011

Investment banks were blistering hot last year as mergers and acquisitions and initial public offerings (IPOs) skyrocketed, helping Goldman Sachs (GS -1.82%) put up a record year with revenue growing 33% to $59 billion.

This year has been a different story. Inflation has taken a front seat, and the Federal Reserve is committed to raising interest rates until it subsides. Rising interest rates create uncertainty for investors, causing elevated volatility across asset classes.

Uncertainty about the economy causes fewer companies to go public through IPOs until conditions improve. Renaissance Capital noted that IPO activity has hit its lowest level in six years.

Goldman Sachs is highly reliant on investment banking revenue despite its efforts to diversify, and in the first quarter its investment banking revenue fell 38%, causing total revenue to drop 27%.

GS PE Ratio Chart

GS PE Ratio data by YCharts

The stock sits at a P/E ratio of 5.6, its lowest level since 2011, when investment banks were still recovering from the Great Recession. While Goldman Sachs trades at a cheap value, I’d like to see interest rates stabilize and deal activity pick back up before buying the stock.

3. T. Rowe Price hasn’t been this cheap since 1990

T. Rowe Price (TROW 0.56%) Actively manages investments for individuals and businesses, meaning its portfolio managers and analysts select investments for clients. Active managers compete with passive investing, which aims to match the performance of a stock index. Passive investment options have exploded in popularity thanks to exchange-traded funds (ETFs) that come at a lower cost to investors.

The shift toward passive funds seems to have made T. Rowe Price less attractive to investors — the stock trades at a P/E ratio of 8.6, its lowest multiple since 1990. T. Rowe Price faces headwinds from growth in passive funds, but active managers aren’t going anywhere soon.

TROW PE Ratio Chart

TROW PE Ratio data by YCharts

While passive investments have taken business from active managers, T. Rowe Price has increased its assets under management at a 12% compound annual rate over the last decade. Revenue and net income have grown at a respective 10% and 14% compounded rate annually during this period.

Last year T. Rowe Price purchased Oak Hill Advisors for $4.2 billion in cash and stock, giving clients access to alternative investment markets while expanding its global reach.

The company has a strong balance sheet with over $2 billion in cash, and has rewarded long-term investors by increasing its dividend for 36 years straight. T. Rowe Price faces headwinds from market volatility in the short term but looks to be a good long-term buy at its current valuation.

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