2 of the Cheapest Stocks I Own


I'll always be a growth investor, but I don't mind saying I have a few value stocks in my portfolio. A low earnings multiplier and chunky return have helped offset the rockiness of the market lately - but I must admit I like that even my value stocks have potential catalysts for growth.

Camping World Holdings (NYSE: CWH) and Momo (NASDAQ: MOMO) are two stocks with all the classic features of value stocks. You are trading with a low earnings multiple. They are giving a fair amount of their money back to shareholders in the form of healthy distributions. They also have the potential to distinguish themselves as growth stocks in the years to come. Let's assess them.

Image source: Getty Images.

Camping world

Being the leading retailer of RVs and recreational vehicle towers is a pretty good place these days. People are hungry to travel but cautious when getting on a plane or sharing a hotel room with hundreds of other travelers. Camping World makes the most of the situation and offers living space on wheels.

In the last two quarterly reports, sales increased by 18% and 21% respectively. Results for the first three months of this year will be announced next week, and we should see revenue growth accelerate in 2021. The RV Industry Association expects the number of new RV deliveries to increase by 23% this year. The bottom line is that Camping World is an even better growth story. For the past four quarters, it has exceeded Wall Street’s earnings forecast by at least 55%.

Camping World gets a lot of love from the market these days. The stock is a 12-digger since bottoming 13 months ago. That doesn't mean it's expensive. It was hard to misunderstand when the pandemic sell-off took place. The stock was trading at just $ 3.40 in March, despite posting a $ 3.66 share of adjusted earnings for the full 2020. When was the last time you saw a stock trading for something that would ultimately be below futures earnings?

The rating is still appropriate. The stock is rolling right now, but it's still trading at 12x trailing earnings and 10 times the likely conservative expected earnings this year. There is also a 2% yield here. You don't see too many stocks seeing accelerated double-digit sales growth with such a low earnings multiple.

Momo

In terms of growth, Momo goes in the other direction - but bear it with me here. Momo was one of the fastest growing online companies in China a few years ago, helped by the booming popularity of its eponymous social search app and its Tantan online dating platform. Five years ago sales almost quadrupled. From there it was only downhill.

  • 2016: 299%
  • 2017: 140%
  • 2018: 51%
  • 2019: 27%
  • 2020: (12%)

Last year was not a nice one. Monthly active users fell from 114.5 million at the beginning of 2020 to 113.8 million at the end. The number of premium users - people who pay for Momo's live video and value-added services - fell even more sharply from 13.8 million to 12.8 million accounts.

Momentum is not doing well with Momo but there are some signs of stabilization. Momo has seen revenue drop between 3.7% and 6.5% year over year in the first quarter of this year, with some positive trends seen in both the content ecosystem and core business.

Weighing makes Momo more and more attractive. It remains very profitable and while 2020 has been a bad year for both ends of the income statement, it trades at only 10 times its trailing reported earnings and only 7.5 times its adjusted earnings of $ 2.02 per share .

It gets better because Momo is cashless. We run these earnings multipliers outside of market cap, of course, but Momo's company value of $ 2.2 billion is only 70% of the market cap of $ 3.1 billion. In other words, Momo's enterprise value is only a little more than five times its lagging adjusted earnings.

Momo also explains annual dividends, and while it keeps most of its profits to fuel its growth and replenish its cash, the $ 0.64 per share annual payout it just sent equates to a 4.2% return . With ample cash reserves to get its apps back on track or plow your way into reinvention, Momo is a dirt cheap stock that has plenty of time to turn around.

This article represents the opinion of the author who may disagree with the "official" referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning an investment thesis - including one of our own - helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.


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