Key Points
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A growing number of investors are finally seeing that leisure cruise company Carnival is indeed able to overcome the odds.
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Ride-hailing outfit Uber Technologies is plugged into a major sociocultural shift that could drive strong growth for decades.
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Digital payment middleman PayPal has regrouped from its pandemic-era weakness and is finally ready to push back on its competitors with some new growth initiatives.
- 10 stocks we like better than Carnival Corp. ›
A growing number of investors are finally seeing that leisure cruise company Carnival is indeed able to overcome the odds.
Ride-hailing outfit Uber Technologies is plugged into a major sociocultural shift that could drive strong growth for decades.
Digital payment middleman PayPal has regrouped from its pandemic-era weakness and is finally ready to push back on its competitors with some new growth initiatives.
Valuations aren’t everything. Sometimes expensive stocks are worth their steep price. Other times, tickers with an oddly low price-to-earnings ratio are cheap for a reason.
Every now and then though, the market just misprices a stock, undervaluing it by virtue of underestimating the underlying company’s likely future.
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With that as the backdrop, if you’ve got $3,000 worth of idle cash you’re ready to put to work but are leery of most stocks’ downright wildly high valuations, here’s a closer look at three dirt cheap names that might be smart purchases before the rest of the market figures out they’re undervalued.
Image source: Getty Images.
1. Carnival
It’s not difficult to understand why shares of cruise line Carnival Corp. (NYSE: CCL) are still trading below their pre-pandemic peak. The company took on a massive amount of debt during the COVID-19 pandemic just to survive.
As of the latest look the $40 billion company that’s doing $26 billion worth of annual business is sitting on nearly $26 billion in long-term obligations that are costing it about $1.4 billion worth of interest payments per year. If the average interest rates on these loans edge any higher as the company’s forced to refinance some of this debt, it could take a toll.
To the surprise of many, however, Carnival is handling it. Through the first six months of the current fiscal year it’s turned a top line of $12.1 billion into operating income of nearly $1.5 billion and net income of almost $500 million. That’s pretty comparable to how it was doing prior to the coronavirus outbreak, before the company was nursing its massive debt load.
It’s still growing, too. Revenue for the quarter ending in May was up nearly 10% year over year, while operating income nearly doubled. Customers’ deposits on future cruises also sailed to a record high of $8.5 billion during the three-month stretch.
What gives? As it turns out, while consumers may be tightening their belts in other ways, vacation travel is one place they’re not skimping. Since leisure cruises often offer the most bang for the buck, so to speak, Carnival is ideally positioned to capture a good share of what the Cruise Line International Association expects to be steady single-digit growth for at least the next four years.
An increasing number of investors are now believers, by the way, given the stock’s nearly 400% run-up from its 2022 low. Even with this big gain though, Carnival shares are still bargain-priced at only about 16 times this year’s expected per-share earnings of $2.
2. Uber Technologies
Speaking of stocks that are still cheap despite recent rallies, Uber Technologies (NYSE: UBER) shares are up more than 300% from 2022’s bear market low, yet are still priced attractively at a little over 30 times this year’s likely earnings of around $3 per share, and only 26 times next year’s projected bottom line.
OK, that’s not “dirt cheap” by marketwide standards. Don’t lose perspective though. That is cheap for shares of a company growing as quickly as this one is that’s apt to maintain its current growth pace for several more years. Straits Research believes the worldwide ride-hailing market is set to grow at an average annualized pace of more than 11% through 2033.
This pace of growth could persist well beyond that point in time.
See, Uber and its ride-hailing peers aren’t just putting a clever spin on an old idea. They’re plugged into a massive cultural shift. A growing number of people just aren’t interested in owning a car (or for that matter, even holding a driver’s license).
A recent survey performed by Deloitte indicates that while only 11% of America’s 55-and-up crowd would consider forgoing access to their own car, 44% of the 18-to-34 crowd would at least entertain the idea. They’d rather use on-demand transportation solutions like Uber, thus avoiding the expense of owning their own vehicle as well as sidestepping the hassle of finding places to park it. As these younger people age, look for them to pass their new preferences down to their kids, further normalizing ride-hailing as an alternative to automobile ownership.
The kicker: Uber’s delivery arm is growing even faster than its personal mobility arm, capitalizing on consumers’ growing demand for same-day e-commerce and online orders of restaurant-prepared food. Straits Research predicts the United States’ same-day delivery business is poised to grow at an average annual rate of 21% through 2033.
3. PayPal
Finally, add PayPal (NASDAQ: PYPL) to your list of dirt cheap stocks to consider buying if you’ve got a few thousand bucks you’re ready to deploy.
It’s arguably one of the market’s biggest falls from grace in this decade. Investors couldn’t get enough shares of the digital payment middleman leading into and halfway through the COVID-19 pandemic. Then it all unraveled.
The stock tumbled more than 80% from its 2021 peak to 2023’s trough, where it’s more or less lingered ever since. Not only was the world suddenly doing less shopping, but a bunch of new competition had crept into this space in the meantime. Or, in the case of Apple Pay or Zelle or Google Pay, pushed deeper into the digital wallet arena, crimping PayPal’s reach as a result. Zelle handled a record-breaking $1 trillion worth of transfers last year, in fact.
Don’t count PayPal out just yet, though. It’s still the king of the digital payments mountain, so to speak, and now that the dust is settling from the arrival of several now competitors, observers can see PayPal is pushing back.
Later this year the company plans to launch PayPal World, integrating other payment platforms like MercadoLibre‘s Mercado Pago and Tencent‘s Tenpay with PayPal and PayPal’s Venmo into a single platform capable of facilitating cross-border payments that just weren’t possible before. It’s also working with agentic (artificial intelligence-powered customer service agents) solutions from AI platforms like Perplexity and Salesforce‘s Agentforce to integrate payment-acceptance solutions directly into their agentic technology’s automated text-based chats.
Only time will tell how well these initiatives will pay off, or even when they’ll pay off. With PayPal shares priced at less than 14 times this year’s expected per-share earnings of $5.21 though (up 12% from last year’s $4.65 en route to $5.75 per share next year), all of any real risk here is already arguably priced into the stock.
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James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, MercadoLibre, PayPal, Salesforce, Tencent, and Uber Technologies. The Motley Fool recommends Carnival Corp. and recommends the following options: long January 2027 $42.50 calls on PayPal and short September 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.