2 Stocks So Cheap It's Like Christmas in July

It's hard to find a bargain in today's ascending market. I think I have a couple. I believe Nvidia (NASDAQ: NVDA) and Upbound (NASDAQ: UPBD) are surprisingly cheap stocks in today's investing environment.

They are two very different companies. You know one. You probably don't know the other. Let's take a closer look at these two investments that seem affordable, each in its own unique way.

Image source: Getty Images.

1. Nvidia

My first name needs no introduction. The world's largest company by market cap is the lead horse in the artificial intelligence (AI) revolution. Its chips are the backbone of AI data centers. They specialize in AI inference and reasoning, large language model training, and high-performance computing.

Business is booming, as you can probably imagine. Revenue has more than doubled in two of the last three years, rising by a still-impressive 66% in the outlier year. The 85% top-line jump it cleared in its latest quarter is its strongest showing in more than a year. You should expect to pay a market premium for that kind of octane, but that's not the case here.

Nvidia stock is cheaper than you probably think. Revenue growth should slow from here, and its chunky adjusted net margin north of 40% doesn't seem sustainable. The current valuation might still surprise you.

Analysts see revenue accelerating in the current quarter, then slowing in the second half of the fiscal year ending in late January. They see the top line ultimately rising 82% this year, cut in half to 41% next year. Wall Street pros see a similar trajectory on the bottom line, with adjusted earnings climbing 88% and 42% through these next two fiscal years, respectively.

Nvidia is now trading at 23 times this fiscal year's adjusted earnings and at just 16 times next year's multiple. The market for high-end AI chips will intensify, but nearly every potential rival is growing substantially more slowly and trading at loftier P/E ratios. With Nvidia trading near its lowest year-ahead earnings multiple in years -- and analysts continuing to underestimate its financial performance -- one of the cheapest stocks right now could be the one with the largest market cap.

2. Upbound

Upbound isn't a household name for most investors and even its customers. This is the parent company of Rent-A-Center, a chain of more than 1,700 retail locations that offers lease-to-own options for furniture, appliances, and consumer electronics. Upbound also has Acima, an enterprise software platform that enables other retailers to drive sales through its lease-to-own solution. Finally, there is Brigit, a recently acquired personal finance app that has become its faster-growing business.

This may seem like an odd combination of high tech on top of an old-tech retailer, but it works. Its flagship Rent-A-Center business is a cash cow. Acima amplifies its reach, and Brigit helps it drive engagement and expand its market.

I may have buried the lede by waiting until the third paragraph to point out its current 7.4% yield. A high payout for a consumer-facing company can be a red flag. There are some clear risks here, but -- for now -- the distributions are more than viable. Revenue is moving higher for the third year in a row. Upbound expects to earn between $4.00 and $4.35 a share this year on an adjusted basis. It's trading for a little more than 5 times this year's adjusted earnings.

Its payout ratio is just 37% at the midpoint of its adjusted earnings guidance. The dividend rate seems safe in the near term, and it has actually increased those quarterly distributions five times in the last seven years.

It wouldn't be fair to end the Upbound discussion there. Let's talk about things that can go wrong. One immediate risk is the economy. A softening economy would hit lower-income families the hardest, and that's the target audience here. Another potential pothole is its substantial debt. This is a leveraged company with an enterprise value more than double its modest market cap.

The last hiccup could be regulatory. Some people consider rent-to-own merchants predatory, but what is the alternative for consumers who are short on cash and have low credit scores when it comes to securing essential household hard goods? If there were an easier way to bake the historically tangled default risk into a lower-cost ownership model, wouldn't it exist already? Upbound won't pass every investor sniff test, but the stock is textbook cheap at the moment.

Rick Munarriz has positions in Nvidia and Upbound Group. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.