A quick glance at McDonald's, Wendy's, Molson Coors Beverage, Conagra Brands, and Blue Owl Capital
1) In Monday's and yesterday's e-mails, I took a "quick glance" at 11 beaten-down stocks. And today, I'd like to briefly look at five more.
Then I'll take a closer look at the ones my readers find the most interesting. So please let me know what you think by e-mailing me here.
Reader Benson W. asked me to look at McDonald's (MCD), writing that the stock is "getting decimated." I'm not sure I'd go that far...
McDonald's is one of the world's greatest businesses, with a global brand and decent growth. It has prodigious free cash flows ("FCF"), which it uses to buy back stock and pay a 2.7% dividend.
It's also a long-term holding in our flagship newsletter, Stansberry's Investment Advisory. We recommended it all the way back in 2012 – and it's currently above our buy-up-to price.
(Only Investment Advisory subscribers have access to our advice and full write-up, as well as our portfolio of open recommendations. If you're not already a subscriber, you can become one by clicking here.)
The stock is at a 52-week low, down 20% from the all-time high it reached in late February – but as you can see, this is a blip in the long-term uptrend:
The main problem is that the stock isn't cheap. It's currently trading at 20.9 times this year's earnings estimates, only slightly below its 10-year average of 24.1 times.
But that strikes me as fairly valued, especially in light of the headwinds from the rise of GLP-1 weight-loss drugs around the world.
2) Wendy's (WEN) looks like a more interesting fast-food stock right now. It has plunged more than 70% in the past five years – and hit a 13-year low yesterday:
But just this morning, it soared as much as 42% – apparently due to speculators pumping it on the WallStreetBets Reddit forum, as this Yahoo Finance article notes.
Wendy's revenues and profits have been weak. But it generates a consistent $200 million in FCF, which it mainly uses to pay a 9% dividend (before today's surge). The main problem is the balance sheet, which is saddled with around $4 billion of net debt.
At this morning's price around $8, the stock is trading at roughly 14 times this year's earnings estimates. While that's below the 10-year average forward price-to-earnings (P/E) multiple of 25.1 times, it's not cheap in light of the company's struggles.
I think this stock is interesting at $6, not $8. So let's see if today's foolishness fades...
3) Another reader suggested I look at beer maker Molson Coors Beverage (TAP), writing:
Earnings haven't declined, but the stock dropped 20% in the past year. It pays a 5% dividend, is buying back stock, and trades at 5 times enterprise value to earnings before interest, taxes, depreciation, and amortization.
The stock is down more than 60% in the past decade and currently sits near a six-year low:
Molson Coors completed a $12 billion acquisition of SABMiller's 58% stake in the MillerCoors joint venture in October 2016. That established it as the third-largest brewer in the world at the time.
Since then, the company has struggled to grow – but it's not shrinking, either. It generates healthy FCF, pays a 4.8% dividend, and is buying back a ton of stock – reducing its share count by 7.2% in the past year.
The stock trades close to its lowest multiple ever, at 8.4 times this year's earnings estimates (versus a long-term average of 14.4 times).
4) Shares of packaged-food maker Conagra Brands (CAG) recently hit a 33-year low:
The stock is being kicked out of the S&P 500 Index, which has triggered selling from the massive index funds. This might create an opportunity for savvy investors...
Conagra's net debt is high at $7.3 billion, but it's not unmanageable. And revenues, profits, and FCF have declined sharply in the past two years.
But it still generated $842 million in FCF in the past 12 months (the 15-year average is a fairly steady $1 billion). This is plenty to cover the $669 million it pays out for its massive 10.4% dividend.
And the stock is very cheap, at 7.8 times this year's earnings estimates – barely half its long-term average of 14.7 times.
5) My friend Todd K., who has spent his career in private lending and business development companies ("BDCs"), asked me to check out Blue Owl Capital (OWL):
I think it's oversold and a fundamentally good asset manager. I agree that with many of the BDCs, the valuations are opaque. But that's built into the large discount to net asset value ("NAV") at which they trade. Given Owl's low multiple and continued long-term growth prospects, it's worth a look.
The stock is certainly beaten up, having lost two-thirds of its value since its peak at the beginning of last year.
It's now trading below its IPO price, when it went public via a special purpose acquisition company ("SPAC") merger five years ago:
Its operating cash flow in the past 12 months is $1.3 billion. That easily covers the $587 million it paid out in dividends, equal to a 10.3% yield at today's share price.
The key question here is whether Blue Owl's holdings are really worth what the company says they're worth – and, if they're not, whether there's a big enough margin of safety built into the discount to NAV at which Blue Owl trades...
Again, if you're particularly interested in one or more of these stocks, please let me know in an e-mail by clicking here.
Tomorrow, I'll take a quick glance at five more stocks, so stay tuned!
Best regards,
Whitney