Warren Buffett famously said for investors to be “fearful when others are greedy, and greedy when others are fearful.” This has become the mantra for investors looking for cheap long-term stocks. A cheap stock can mean many different things to many different people, but ultimately it represents a company that the market is underestimating – whether that be because its industry is in a down-cycle, it’s being overlooked or it’s weathering some type of controversy.
But there’s a difference between long-term stocks for smart investors and falling knives that will rip your portfolio to shreds. It’s important to remember often, the market is fearful for a reason. Remembering that, value investors look for a few key themes when it comes to picking diamonds in the rough.
Firstly, management teams with a lot of experience righting the ship and coming through hard times have the advantage here. That kind of experience doesn’t guarantee a win for value investors, but it does add a degree of confidence that a company is capable of pulling through turbulent times.
Another theme worth considering is an industry-wide shift. Big changes represent massive opportunities for companies that are willing to pounce on them. The shift toward e-commerce in retail in the 2000’s is a prime example of this phenomenon.
Finally, it’s worth looking at the current conditions and seeing who’s thriving. The companies benefitting in the current environment are likely to struggle when things change – so investors want to find a company that’s well prepared for the next stage of the economic cycle. That means strong cash flow, manageable debt and a strong value proposition. Let’s see which cheap long-term stocks meet the criteria.
Moneysupermarket.com Group (MNSKY)
Rising interest rates are causing the value of future cash to go down, causing valuations to fall. But that doesn’t necessarily mean all falling shares have the potential we previously discussed. The key to making a smart pick is looking for companies with quality earnings now. Moneysupermarket.com Group (OTCMKTS:MNSKY) is a solid option in cheap long-term stocks.
The group offers online price comparison services for everything from cell phones to insurance to loans. The service being completely digital leaves it with little overhead, and the cost of living crisis has heavily weighed on consumers’ ability to spend. Cash-strapped consumers are a reality for the foreseeable future. In the UK, inflation isn’t expected to ease to the Bank of England’s 2% target until mid-2025 – and that’s not an uncommon issue globally.
Moneysupermarket will have to work hard to fend off competitors like Google. But ultimately the company is in a strong position to thrive well into the future. That makes it a good pick among long-term stocks for smart investors.
Pfizer (PFE)
Pandemic winners have suffered some hefty losses now that things are in the rearview mirror, making this group a good place to look for cheap long-term stocks. Pfizer (NYSE:PFE) is one such company, as its Covid-19 vaccine offered a windfall of cash, but that revenue stream is now running dry. However, Pfizer has been putting the money to good use, plowing it into research and development for new treatments.
Pfizer’s challenges aren’t limited to its falling Covid-19 sales – it’s also got quite a few upcoming patent expirations. That’s hurt investor sentiment and taken a bite out of the share price. Pfizer’s hoping to offset those potential losses with a strong pipeline of new treatments. However, given that drug approval can be an arduous process and approval isn’t guaranteed, that comes with a hefty dose of risk.
Pfizer’s management has a strong track record of churning out blockbuster drugs, so the current weakness could make the group a good pick among cheap long-term stocks. The company is also working to round out its portfolio by bringing cancer specialist Seagen (NASDAQ:SGEN) under its umbrella.
General Motors (GM)
Though the auto industry is rocky, it can be a good place for discerning investors to look for cheap long-term stocks. General Motors (NYSE:GM) owns some of the most iconic car brands – from Chevrolet to Cadillac. But macroeconomic headwinds and electric vehicles’ (EV) momentum have caused the company to lose some of its shine.
However, GM could be a dark horse in the EV race. The group’s aiming to offer only EVs by 2035 and it’s become the second largest EV provider in the US. Hefty debts aren’t uncommon among automakers, though GM’s could become a problem if the group can’t execute on its growth ambitions. Additionally, the group’s free cash flow looks to be in good shape so this isn’t currently a red flag.
GM is also somewhat of a contrarian play, as automakers go. Many investors are expecting a global economic slowdown that weighs on consumers for years. That would mean big purchases like new cars are scratched off shopping lists. However there are some who say a softer-than-expected landing is in store, which would boost auto stocks like GM.
On the date of publication, Marie Brodbeck 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.