With some small signs of recovery in recent weeks, investors were hoping for a break from the relentless selling they have seen in the market this year. However, on Friday the market extended its sell-off after higher-than-expected inflation reported in May. the Nasdaq Composite found itself down 3.6% at one point on Friday, extending its year-to-date losses to 27.5%.
Stock market crashes and corrections can be scary and challenge even the best investors, but they can present great opportunities for those with a long-term investment horizon. A number of time-tested bargains are bargains you can buy today. Here are three of those companies.
1. Morgan Stanley
analysts in Morgan Stanley (EM -4.63%) advising companies conducting initial public offerings (IPOs), helping companies increase their debt, and engaging in other investment banking activities as part of their service offerings.
In an effort to stabilize the company’s revenue, which can fluctuate depending on economic conditions, CEO James Gorman has taken a conservative approach to acquisitions. The company spent $20 billion over the previous two years acquiring companies that could complement its investment banking and generate more stable income.
One such acquisition was online trading platform E*Trade, which gave Morgan Stanley a steady stream of commission and fee income, which could do well in volatile markets as trading activity picks up. It also acquired asset manager Eaton Vance, providing it with an income stream from asset management fees.
The moves paid off and can be seen in Morgan Stanley’s first quarter earnings. Markets experienced high volatility in the quarter, with investment banks seeing profits take a big hit as IPO activity slumped. The firm’s investment banking revenue fell 37% in the quarter, primarily due to fewer IPOs. However, net income fell only 6% and net income fell 11%. Compared, Goldman Sachswhich relies heavily on investment banking income, saw its revenue decline 27%, while net income fell 43%.
Morgan Stanley shares trade at a price-to-earnings ratio (P/E) of 9.9, down from its 10-year average P/E of 14.6, despite adding these new sources of income, which which makes it seem like a good bargain at current prices. .
Allstate (EVERYBODY -2.56%) writes insurance policies, focusing on auto and homeowners insurance. Insurance is a business that will always be in demand, with individuals and businesses looking to protect themselves against catastrophes, giving insurers a degree of pricing power that other industries may not have.
Last year, Allstate saw higher claim costs due to higher repair costs and higher used car values. In response, the insurer raised rates at 41 locations by an average of 8.3%.
Insurers must manage risk appropriately, which can be measured by a metric called the combined ratio: claims paid plus operating expenses, divided by written premiums. A ratio below 100% is the target because it means a company receives more premiums than it pays out in claims. Allstate has a good history of pricing policies, and as of 2012, the insurer’s average combined ratio is 93.4%, below the industry average of 99% for the same period.
Allstate shares trade at a P/E ratio of 10.5, down from their 10-year average of 11.9, and are well-positioned if inflation holds up for a while longer.
3. Price of T. Rowe
T. Rowe Price (TROW -5.25%) advises individuals and other managed funds on investments. The firm is an active manager, meaning it has portfolio managers and analysts who manage clients’ assets, as opposed to passive investing, which aims to match the performance of a stock index.
The popularity of passive investing grew in the last decade with the explosion of lower-cost exchange-traded funds (ETFs). Passive investing has taken the business away from active managers like T. Rowe Price. Despite this, the company has grown assets under management at a compound annual growth rate of 12% over the last 10 years.
T. Rowe Price has a strong balance sheet with $2 billion in cash, even after acquiring Oak Hill Advisors, LP and paying $2.8 billion in dividends and share buybacks last year. The company is also a Dividend Aristocrat, which means it is a S&P 500 component company that has increased its dividend annually for at least 25 years. This year, T. Rowe Price increased its dividend for the 36th year in a row.
T. Rowe Price’s P/E ratio of 9.3 is the lowest valuation the company has seen since the early 1990s and the stock could be a great buy at these prices.