Selling Market: These 2 Top Stocks Are on Sale

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S&P500 Earlier this week, the market plunged into bear territory, more than 20% below its early January peak. Broader market declines have pushed down the valuations of a few good individual stocks across many sectors and industries.

I’m looking at two stocks that have been on offer for a long time and were already trading low before the market crash started in November. Whatever the reason, investors have undervalued it despite its strong performance. Should Investors Take a Risk on These Two Selling Stocks? Let’s take a closer look.

1. The case for Goldman Sachs

Goldman Sachs (GS-1.80%) is currently trading at around $290 per share, up around 24% to date, and based on its fundamentals and outlook, this is a cheap valuation.

The investment banking giant has a price-to-earnings (P/E) ratio of 5.6 and a forward P/E of 7.7.

Also consider the 5-year price/earnings to growth (PEG) ratio — a metric that weights a stock’s price relative to its expected earnings growth. At 0.2, this is another indicator of a cheap stock as any PEG ratio below 1 is considered undervalued.

It also trades at a price-to-book (P/B) ratio of 0.9 — another sign it’s discounted, as a P/B of 1 indicates the stock is trading at its true value.

So why is Goldman Sachs a good buy at this low valuation? It is the market leader in its two divisions, Investment Banking and Global Markets – the institutional trading arm. While M&A activity has slowed significantly over the past year, Goldman Sachs is still the leader in transactions in 2022. And while stock trading has slowed, Goldman Sachs had a record quarter for fixed income trading. Additionally, the company saw strong growth in its personal banking/wealth management business, with revenue up 21% year over year. It offset losses in the asset management business caused by a general decline in assets due to a falling stock market.

Even after this bear market dip, Goldman Sachs is trading nearly twice as expensive as it was in its initial pandemic decline in March 2020, given its market leadership and variety of revenue streams. Yet it’s still cheaper for them. Metrics making this a good time to buy shares of this blue chip financial institution.

2. The Citigroup case

You definitely don’t have to wait for a market crash Citigroup (C -1.39%) underestimated. The country’s third largest bank by assets has been undervalued for several years due to the pandemic but due to its own risk management issues.

But Citigroup has been a relative outperformer in 2022 compared to its megabank peers. It is now down about 20% per year and extremely undervalued. It has a P/E of 5.6 and a forward P/E of 7, which translates to a PEG ratio of 0.4. In addition, the P/B ratio is only 0.5. All of these metrics show that a stock is trading well below its value.

Renowned value stock investor Warren Buffett, President and CEO Berkshire Hathawayrecognized this when they added Citigroup to the group’s portfolio in the first quarter.

What Buffett observed was that Citi was trading at a huge discount, largely due to past mistakes, but the bank has made some significant changes. They began bringing in a new CEO, Jane Fraser, who refocused its strategy on its strengths and exited underperforming companies. It has also invested about $1 billion to improve its internal controls.

While Citigroup’s transformation won’t happen overnight, it’s a good buy at this valuation. And the current environment of rising interest rates should benefit it by increasing its interest income until inflation can be brought under control and the US economy does not slide into recession.

When the economy and markets eventually reverse, these two undervalued stocks will be in a good position to rise.

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