Have $500? 2 Absurdly Cheap Stocks Long-Term Investors Should Buy Now

Source The Motley Fool

It's not easy to find compelling values on the stock market in normal times -- and these are anything but normal times. The S&P 500 is on track to finish its second consecutive year of 20%-plus gains, ensuring that most popular stocks are already trading near all-time highs.

Discounts are available, though, for investors willing to look outside of Wall Street's favorite sectors in the tech and artificial intelligence (AI) industries. With that goal in mind, let's take a look at two stocks that seem unusually cheap by historical standards.

Stretching into the holiday season

Retailers have had a mixed start to the holiday season, as consumers have been cautious in their spending patterns. For every Walmart and its strong customer traffic, it seems, there are several other struggling competitors (such as Target). Yet consumers aren't skipping their trips to Lululemon Athletica (NASDAQ: LULU).

The athleisure apparel specialist's stock jumped higher in early December after management reported a 9% sales boost for the Q3 period that ran through late October. "We are pleased with the start to our holiday season," CEO Calvin McDonald said in a press release as the company raised its full-year outlook. Lululemon's profitability is strong and rising, too, with gross profit margin improving to 59% of sales through the first three quarters of 2024, better than 58% of sales a year earlier. Net income for the quarter crossed the $1 billion mark, up from $881 million in the prior-year period.

Sure, there are signs of challenges in some parts of the business. Lululemon is getting most of its growth from its international segment, while the U.S. division shrank 2% this past quarter. Investors should watch for signs of improvements here over the next few quarters as management works to reaccelerate growth in the U.S. and Canada. But the stock still seems cheap (down 20% in 2024) following its recent rally. You can own shares of this successful retailer for 29 times earnings, about half of the valuation investors saw back in early 2024.

All bark and no bite

Chewy (NYSE: CHWY) shares have actually outperformed the broader market's rally in 2024, yet the stock looks like a bargain when you zoom out just a bit. Shares are trading far below their pandemic highs and are down over 40% in the past three years, as opposed to the S&P 500's 30% spike.

It's true that the pet supply retailer has struggled to recapture its past growth momentum. Chewy's pool of active customers has declined by less than 1% so far in 2024 after dropping 2% in 2023. It's hard to get excited about a business that can't grow in that key category.

But the long-term outlook is brighter. Pet adoption rates will eventually recover from the slump they've been in since the pandemic. In the meantime, Chewy is making progress entering attractive categories like pet health. Its roughly stable customer base remains extremely loyal, with over 80% of sales last quarter coming from its subscription-like autoship service. And the business has remained profitable through a difficult few years and is generating an ample, and growing, annual cash flow.

Chewy's fiscal 2025 might show only modest improvements along metrics like sales growth and active customer pool. But long-term investors could look back in a few years and be thrilled that they added this rebounding stock to their portfolio.

Should you invest $1,000 in Lululemon Athletica right now?

Before you buy stock in Lululemon Athletica, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Lululemon Athletica wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $841,692!*

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy, Lululemon Athletica, Target, and Walmart. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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