The market’s breadth broadened last week as yields fell on a cooler inflation report. In June, the Consumer Price Index increased 3% year-on-year and declined 0.1% month-over-month, raising the prospects of a rate cut in September. In response, there was a rotation out of the Magnificent Seven into the rest of the market. If this rotation keeps up, it’s an opportune time to consider some bargain stocks to buy now.
Although rate cuts improve stock return prospects, being selective at these levels is vital. The momentum in information technology and communication sectors has carried the markets so far. But with valuations in some of the year-to-date leaders stretched, it’s time to rotate into cheaper stocks. Remember, we are headed into the seasonally weak August to October period, with the U.S. elections likely to increase volatility.
Therefore, seek safety in these bargain stocks to buy now. Due to their lower valuations, they offer downside protection in case volatility increases. Moreover, if market breadth improves, they have substantial upside as they catch up to their growth counterparts.
Devon Energy (DVN)
One of the value sectors with many bargain stocks to buy now is energy. The sector trades at a next-twelve-month price-to-earnings of 12.1 versus the S&P 500’s 21.6. Even better, Devon Energy (NYSE:DVN) is cheaper at a 8 times forward P/E multiple.
After shedding its Barnett Shale, Canadian interests and Enlink Midstream interest, Devon is now a U.S. shale-focused exploration and production company. Today, it’s one of the lowest-cost producers with prime assets in the Bakken and Delaware Basin. All in all, Devon has exposure to five U.S. shale basins that guarantee a 17-year inventory life.
Moreover, the oil company is still enhancing its assets. On July 8, it announced a $5 billion acquisition of the Williston Basin business of Grayson Mill Energy. The deal adds a higher margin production mix and makes Devon one of the largest U.S. oil producers, with estimated production of 765,000 oil-equivalent barrels per day. Furthermore, the deal is immediately accretive to free cash flow and earnings.
Since the deal is accretive, Devon increased its buyback through mid-year 2026 by 67% to $5 billion. Also, the deal is accretive to its fixed-plus-variable dividend payout which means an increase to the latest $0.35 per share payout. This oil producer is cheap and has an impressive shareholder return program; it’s a buy.
General Motors (GM)
In fiscal year 2023, General Motors (NYSE:GM) delivered a net income of $10.1 billion and adjusted EBIT of $12.4 billion. Despite these amazing profits, GM stock is priced like a business in decline. At 5 times forward earnings, it priced like a distressed stock, yet it grew net income by 5.2% in 2023. What’s more, GM is seeing growth opportunities in EVs.
The main reason to be excited about General Motors is its capital return program at these attractive levels. The auto maker announced a $10 billion accelerated share repurchase in November 2023. Consequently, on June 11, its board approved a $6 billion buyback to allow opportunistic repurchases once the accelerated plan is exhausted.
These plans will shrink share count by over 25% and are accretive to earnings. Management estimates repurchases of $1.4 billion and $300 million in dividends in the first half of 2024. According to Oakmark’s Bill Nygren, if GM maintains 2023 net income levels, EPS will go up by 40% due to these repurchases.
Besides the accretive repurchases, green shoots are emerging in the EV business. Q2 new energy vehicles (NEVs) sales in China rose to over 143,000 units, a 24.1% YOY increase. With this combination of growth and value, General Motors is one of the top bargain stocks to buy now.
Kilroy Realty (KRC)
Kilroy Realty (NYSE:KRC) is one of the bargain stocks to buy now in the real estate sector. This REIT develops and operates mixed-use, class A office and life science real estate in the San Francisco Bay Area, Los Angeles, San Diego, Seattle and Austin. Although the West Coast office market remains stressed, office occupancy rates are increasing, boosting net operating income.
Moreover, a focus on the rapidly growing life sciences market is a key differentiator. Due to drug innovation and an aging population, this segment is well-positioned for growth. Kilroy is increasing life science tenants through projects such as Kilroy Oyster Point.
In Q1 2024 results, management noted improving demand trends. First, the REIT recorded the highest first quarter leasing volume since 2017. Regarding life science demand in the Bay Area and South San Francisco, they highlighted that demand was tracking at 2.5 million square feet, a 25% increase from Q4 2023.
With occupancy in office improving and the life science portfolio driving growth, Kilroy is one of the bargain stocks to buy now. A forward price-to-funds from operations of 8 and a 6% dividend yield is too attractive to pass over.
On the date of publication, Charles Munyi 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
