Due to a low interest rate environment and access to cheap capital, growth stocks outpaced value stocks by a wide margin between 2010 and 2021. But quantitative easing measures amid the ongoing pandemic have driven inflation to multi-year highs in several countries.
To combat higher commodity prices, the Federal Reserve is tightening its monetary policy, dragging overvalued growth stocks down lower in 2022. A challenging macro-economic environment has triggered a rotation into value stocks as investors place their bets on companies with strong fundamentals trading at a discount.
Here, we look at two extremely cheap U.S. stocks that Canadian value investors can buy in August 2022. These two stocks are trading at a deep discount to consensus price target estimates.
Exxon Mobil
Exxon Mobile (NYSE: XOM) stock is trading at an attractive multiple despite gaining 61% in the last year. Rising oil prices have allowed energy companies including Exxon Mobil to deliver solid profits in the first two quarters of 2022. In Q2, Exxon Mobil reported adjusted earnings of US$4.14 per share, compared to estimates of US$3.74 per share.
Right now, Exxon Mobil’s stock price is down 15.4% from all-time highs, increasing its forward yield to a tasty 4%. While Exxon Mobil is part of a cyclical industry, the energy giant has increased dividend yields for 39 consecutive years, showcasing its resilient business model.
The company is also increasing investments in the renewable energy segment, as it expects the total addressable market for carbon capture and storage solutions to reach US$4 trillion by 2050.
Analysts expect Exxon Mobil’s earnings-per-share to rise to US$12.35 in 2022, valuing the stock at a forward price-to-earnings multiple of 7.2, which is extremely cheap. Analysts tracking the company have pegged a 12-month price forecast of US$102 for Exxon Mobil stock, suggesting an upside potential of 15%. Factoring in its dividend yield, total returns in the next year may be closer to 20%.
Skechers
One of the largest footwear brands in the world, Skechers (NYSE: SKX) has the opportunity to generate market-thumping returns for long-term investors. With a market cap of US$6 billion, Skechers stock is valued at 0.88 times forward sales.
In Q2, Skechers increased sales by 12% year-over-year to US$1.87 billion, despite macroeconomic headwinds and supply chain disruptions. Revenue in the U.S. surged 15% while international sales were up 10% compared to the year-ago period. However, higher freight costs reduced the company’s gross margins by 330 basis points to 48.1%.
In Q3, Skechers forecasts sales between US$1.80 billion and US$1.85 billion while earnings are estimated between US$0.70 and US$0.75 per share. In 2022, it forecasts sales and earnings at US$7.3 billion and US$2.65 per share respectively.
So, Skechers stock is trading at 14.8 times forward earnings which is quite reasonable given Wall Street expects the bottom-line to expand by 32% annually in the next two years.
Skechers is well-poised to be resilient in an inflationary environment due to its strong brand value, providing the company with enough pricing power. Analysts tracking Skechers stock expect shares to rise by 20% in the next year.
