It's been a great run for stocks over the past decade, with the S&P 500 more than tripling during that time. But with trade tensions between the U.S. and China escalating and the global economy slowing, there are value stocks still to be found! Because finding those value stocks is easier said than done, three Motley Fool contributors suggest taking a look at NIO (NYSE: NIO), Children's Place (NASDAQ: PLCE), and Booking Holdings (NASDAQ: BKNG).
Just a speed bump?
Daniel Miller (NIO): If you're a believer in Buffett's famous quote, "Be fearful when others are greedy and greedy when others are fearful," NIO offers an attractive entry point in June. NIO is a leading Chinese premium electric vehicle manufacturer, but thanks to weaker demand after reduced EV subsidies and increasing competition from Tesla, among others, the stock has shed just over 50% of its value since its September 2018 initial public offering.
To be fair, there are serious concerns facing the company, and owning NIO isn't for the faint of heart. NIO's first-quarter sales dropped 54% sequentially from the fourth quarter, and April's demand was slower than expected thanks to a subsidy reduction announcement in March. There was also a slowdown of macro-economic conditions in China as well as growing U.S.-China trade tensions. But despite near-term headwinds that have impacted NIO, there's one factor that could set it apart from the competition and enable it to thrive as the China EV sales boom continues: its brand.
What most American investors don't realize is how much more NIO's brand expands beyond its vehicles. NIO House facilities have an open showroom to fuel sales downstairs but also boast a members-only space upstairs, where they have a café-like space to work, relax, read in a library, grab something to eat or drink, or even a place to drop their kids off while they shop. Further, NIO also has an app boasting more than 800,000 users as well as a virtual currency gained by engaging with the company's social media content. As Citron Research noted in its bullish report, the company's 2017 NIO Day to unveil the ES8 drew more than 110 million views. NIO could become a lifestyle rather than only a vehicle brand.
NIO's ES6 SUV. Image source: NIO.
Despite weaker sales during the first four months of 2019, management remains confident that second-quarter sales will be at the top end of its guidance or exceed it. Better yet, the company's second SUV production model, the ES6, will begin delivery to users during the second half of June, which could provide a sales spark for the company during the second half of 2019.
Only time will tell if NIO can rebound from a rough first quarter and near-term headwinds, as well as heavy bottom-line losses. But unlike many competitors, it has a widespread brand that could help it thrive as the Chinese EV market booms -- and after a 50% stock price decline since its IPO, June could prove a great time for long-term investors to scoop up shares.
An overlooked retailer
Jeremy Bowman (Children's Place): One value stock I keep coming back to is Children's Place, a mostly ignored retailer of children's apparel. Shares of the chain have fallen 19% over the last month after a tough earnings report and trade tensions prompted a gradual sell-off throughout May. With the stock now trading near 52-week lows, Children's Place again looks like an appealing buy.
The company is the largest pure-play children's apparel retailer in North America, and following the bankruptcy of chief rival Gymboree earlier this year, it should be in stronger shape once it moves past the impact of the Gymboree liquidation. Children's Place's first-quarter report was ugly, as expected, as comparable sales fell 4.6%, and adjusted earnings per share fell from $1.87 a year ago to $0.36 as the company absorbed the impact of the closure of Gymboree's 800 locations.
While the liquidation will weigh on performance this year, analysts expect profit growth to return in 2020, projecting earnings per share of $8.06, giving the stock a forward P/E of less than 12. Meanwhile, Children's Place has established itself as a strong dividend payer, offering a 2.4% yield and having raised its dividend every year since it initiated it in 2014. The company has also been aggressively returning cash to shareholders through opportunistic share buybacks.
While much of the apparel industry has struggled with the shift to online retail, Children's Place has been preparing for such a transition, closing down underperforming locations and building up an e-commerce business that now generates about 30% of its sales.
All of those qualities should help the stock recover its recent losses as it starts to put the Gymboree liquidation behind it.
A perennial winner
Brian Feroldi (Booking Holdings): Booking Holdings is one of my largest personal positions and biggest winners of all time, so I always take note when this business goes on sale. With shares currently trading for less than 16 times forward earnings, I think they are currently in bargain territory.
What's behind the cheap valuation? A number of factors are to blame:
- The trade war between the U.S. and China has investors worried that the demand for travel might slow.
- The market is becoming increasingly competitive.
- Booking Holdings has already become so large that it is becoming increasingly difficult for the company to grow.
When we combine these concerns, it is understandable why traders have marked down the valuation.
My view is that Wall Street is too focused on short-term issues and is missing the bigger picture. A rising global middle class should ensure that the long-term demand for travel remains robust for years to come. Booking Holdings also has a long history of making value-adding acquisitions to ensure that its growth rates remain strong (last year's buyouts of the event and attractions booking site FareHarbor and customer relationship management site Venga could be winners). Finally, management uses its robust cash flow to buy back tons of stock (the diluted share count is down 14% in the last five years).
Add it all up, and Wall Street believes that Booking's bottom line will grow in excess of 12% annually over the next five years. If that proves to be anywhere close to accurate, shareholders look poised to continue earning market-beating returns from here.
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Brian Feroldi owns shares of Booking Holdings. Daniel Miller has no position in any of the stocks mentioned. Jeremy Bowman owns shares of The Children's Place. The Motley Fool owns shares of and recommends Booking Holdings. The Motley Fool has a disclosure policy.