Here are my best value stocks to buy right now

A stock of value is generally described as a stock that is worth more or has higher intrinsic value than indicated by the stock price. Value-driven investors identify these stocks in several ways, including a low price / earnings (P / E) ratio, a low P / E / growth ratio (PEG), or a low price / earnings (P / N) ratio. . The idea, of course, is to buy those undervalued stocks in the hope that they will rise in price and realize their true value.

One stock, in particular, that is undervalued relative to its growth potential is Allied financial (NYSE: ALLY). Here’s why this is top-notch action right now.

Image source: Getty Images.

Ally makes a major acquisition

Ally Financial is a digital-only bank that is one of the country’s two largest auto lenders, with Capital One Financial. No wonder, since Ally has its roots in the auto industry – it started as GMAC Finance, providing loans to General Motors clients.

Ally has just had an excellent third quarter, with revenue increasing 18% year-on-year to $ 2 billion and net profit 43% year-over-year to $ 683 million. About two-thirds of Ally’s revenue, or roughly $ 1.3 billion, came from auto financing, which has seen a 20.6% year-over-year increase. Auto loan origination totaled $ 12.3 billion in the third quarter, up from $ 9.8 billion a year ago. This was the company’s third highest quarter since 2006 for auto loan origination.

The stock price has risen about 36% year-to-date and is trading at around $ 48.50 per share. But since the third quarter earnings release, stocks have fallen about 13%, which doesn’t fully reflect the strong performance and battered earnings. Perhaps investors were scared off of higher spending due to technology upgrades and marketing costs to fund Ally’s new campaign – “We’re all better off with an ally,” the most important of all. his history.

It could also be due to macroeconomic issues, like inflation and COVID-19, or chip / supply chain shortage issues, which hurt the auto industry, especially in the third quarter.

Another factor could be its purchase of Fair Square Financial, a digital credit card company, for $ 750 million. The deal was struck to further diversify its revenue streams and strengthen its credit card business, bringing some 658,000 cardholders and $ 763 million in loan balances to Ally. “Adding credit card capacity has been an important goal for us, and today we are announcing the opportunity to address this key product gap,” CEO Jeffrey Brown explained at the call for third quarter results.

Just before the pandemic hit, Ally announced a deal to buy CardWorks, a credit card company, but the deal fell through once the pandemic hit. Maybe some investors are questioning this move into a crowded space, which has become even more competitive with payment apps, and buy now, pay later, vendors are popping up all over the place.

Ally expects Fair Square to generate profit from next year. “Once closed, we expect the transaction to generate profits by the end of 2022 and through the year 2023, while adding 100 basis points to 150 basis points to our returns as we are organically growing the portfolio, ”said CFO Jen LaClair in the third quarter. to call.

Good value

Whatever the reason for the sale, this is good news for investors as this security has become of even better value. It has a price-to-earnings ratio of 5.9 with a forecast price-to-earnings ratio over the next 12 months, which is pretty much the same. Plus, it has a five-year PEG ratio of just 0.30. These metrics indicate a stock that is undervalued relative to its short- and long-term growth expectations.

Despite the market reaction, the Fair Square deal is a good one as it helps diversify Ally’s revenue streams and adds a key element towards Ally’s goal of growing as a large-scale digital bank. It is also a good choice as it is a digital credit card company coming to the main online banking, and it gives Ally the opportunity to attract new customers and deepen existing relationships. .

Additionally, as a leading auto lender, Ally is expected to benefit over the next several years as the auto sales market rebounds in 2022 from pent-up demand and begins to normalize in 2023.

Overall, if you are looking for a solid value stock in your portfolio, Ally is a very good option.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

Comments are closed.