The S&P 500 trades at an average price-to-earnings (P / E) ratio of nearly 40, making it an expensive market for value-conscious investors. But the good news is that some companies are still opposing the trend. Let’s explore the reasons why MGM Resorts (NYSE: MGM) and Altria (NYSE: MO) could make overwhelming investments due to their cheap valuations and exciting new growth engines.
1. MGM Resorts
The online gambling market in North America is heating up and MGM Resorts is a great way to bet on this trend. So far, the casino operator’s pivot to sports betting is going as expected, and its relatively low valuation sets it apart from the industry’s high-profile competitors.
Morgan Stanley analysts expect 12 new US states to legalize online sports betting and gambling in 2021. And north of the border, the House of Commons has approved Bill C-218 , which paves the way for the legalization of sports betting in Canada, although the bill will have to enter a final phase of hearing with the Justice Committee before entering into force.
MGM management expects the combined sports betting and online gaming opportunity to be $ 20.3 billion by 2025, with a projected market share of 15-20%. So far, the BetMGM platform has performed as expected, with a 17% market share in the states where it is active.
MGM is an alternative to high-profile competitors due to its low valuation. The company’s main casino business is unprofitable at this time, so its price-to-earnings (P / E) ratio is not a useful metric. But with a multiple price / sell (P / S) of just 3.4, MGM is a relatively inexpensive way to invest in the sports betting opportunity, compared to competitors like DraftKings and Penn National Gaming which trade at 51 times and 4.3 times sales respectively.
Some might say that the US tobacco industry is dying due to declining cigarette sales volume, but Altria paints a different picture. The nicotine giant managed to maintain its growth in 2020 despite a difficult year with the coronavirus pandemic (which may have benefited the industry by increasing smoking rates). And its pivot to lower risk products could fuel continued expansion for years to come.
Revenue for the year increased 4.2% to $ 6.3 billion, as Altria offset a 0.2% decline in sales volumes of smoking products with price increases. The company generated full-year adjusted earnings per share (EPS) of $ 4.36, giving the stock a P / E ratio of just 10, which is significantly lower than the S&P 500 average of 40. and lower than that of comparable tobacco giant. Philip morris, which trades for 17 times the profits.
Altria also has a 7.9% dividend yield and has increased its payout for 51 consecutive years, making it a King of dividends.
According to CEO Bill Gifford, Altria plans to shift its business strategy toward reduced risk tobacco products, including oral tobacco, vaporizers, and non-combustible tobacco products that release nicotine by heating instead of burning. The company owns a majority stake in Helix Innovations, the maker of on! nicotine pouches and exclusive US marketing rights to IQOS, a tobacco heating system believed to release fewer harmful chemicals than traditional cigarettes.
Altria also owns a stake in vaping start-up JUUL Labs, which was written down by $ 2.6 billion in 2020 due to regulatory issues with its marketing. However, the company recorded an unrealized gain of $ 100 million on its stake in JUUL in the fourth quarter, showing that the downside can already be factored in.
Get moving for your dough
MGM Resorts and Altria are two large companies that bargain cheaply as they look to new opportunities in sports betting and reduced risk tobacco products. Both actions could make welcome additions to your investment portfolio – especially in this potentially overvalued market.
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 heterogeneous! Questioning 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.Source link