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These 3 Value Stocks Are Absurdly Cheap Right Now

April 10
10:12 2019

Don’t look now, but the stock market is pushing toward an all-time high once again. After panic-selling took over at the end of 2018, stocks have roared back this year, and the first quarter was one of the best ever for the S&P 500, with a 13% jump in the first three months of the year.

While a double-digit gain to start the year is certainly good news for investors, it’s not always a welcome sign for value-stock aficionados on the hunt for bargains. Even Warren Buffett has bemoaned the lack of reasonably priced companies on the market these days.

Luckily, there are still a few smart bets available for value investors if you know where to look. Keep reading to see why these Motley Fool contributors recommend Allergan (NYSE:AGN)CVS Health (NYSE:CVS), and Macy’s (NYSE:M).

Lots of headwinds, but it’s not all bad news for this biopharma

Todd Campbell (Allergan): A company’s price-to-book value can help you identify cheap stocks. One of the cheapest big-cap companies out there using this metric is Allergan, a global biopharma giant best known for aesthetics treatment Botox.

Allergan’s shares have taken a drubbing since Pfizer (NYSE:PFE) abandoned its $160 billion merger plans in 2016 because of changes in rules regarding deals designed to skirt U.S. corporate taxes. Allergan’s shares are trading at about half what they were back in 2015, and as a result, its price-to-book ratio is a measly 0.76. Earlier this year, the ratio was 0.68, the lowest in its history.

The ongoing sell-off reflects how Allergan has struggled to differentiate itself from its biopharma peers. Rather than boosting R&D, it relied heavily on acquisitions in the past to fuel growth and that caused its debt to skyrocket. After acquiring Actavis in 2015, its debt totaled over $40 billion. Even after selling its generics business to Teva Pharmaceutical (NYSE:TEVA) for $34 billion and 100 million Teva shares that it’s since sold, debt remains nearly $24 billion, costing it over $900 million in interest per year.

Even worse, an absence of new products has contributed to shrinking sales and profit, especially in the wake of pushback against increasing prices on its existing products. In Q4, revenue declined 5.7% year over year to $4.1 billion and adjusted earnings per share fell 11.7% year over year to $4.29.

Continue Reading at The Motley Fool

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