I went shopping for some Wall Street bargains in September.
The market was rolling in September, and I was buying into that strength. With interest rates heading lower, I had way too much of my portfolio parked in money market funds. I started to move some of that cash into stocks.
Some of the stocks I bought last month include Sirius XM Holdings (SIRI -1.95%), PDD Holdings (PDD -0.06%), and Carnival (CCL -2.09%). Let’s take a closer look at why I’m willing to risk the safety of cash for the opportunity these three investments offer.
1. Sirius XM
I know that pessimism is running thick when it comes to Sirius XM. The popularity of premium satellite radio possibly plateaued last year. Revenue gains have been anemic for a decade, turning negative in 2023. In a year of rallying prices, Sirius XM has been obliterated. The stock is down a blistering 53% in 2024, tumbling 27% just last month alone.
The recent weakness isn’t a surprise. The conversion of majority shareholder John Malone’s tracking shares into Sirius XM common stock — and a 1-for-10 reverse stock split as a result of the transaction — triggered a short-term wave of selling in September. Growth investors have turned the dial on Sirius XM, but today’s situation could be music to the ears of opportunistic value investors.
Image source: Getty Images.
Shares of Sirius XM hit a new 12-year low on Tuesday. It’s a grim stock chart for a company that has seen its revenue nearly triple and its earnings per share surge fivefold in that time. There’s no denying the appeal of Sirius XM as a value play here. The stock is trading for just 7 times trailing earnings. Dividend investors will appreciate the 4.7% yield for a company that has bumped its payout higher every year since initiating distributions eight years ago.
It’s not comforting to see Sirius XM’s subscriber count shrink by 618,000 through the first six months of the year. The good news is that the platform still has 33 million subscribers. Churn is near historic lows, as the problem is more the lack of new users than the defection of current listeners. Advertising is currently 20% of the revenue mix, and this is a lucrative demographics group for marketers to reach.
Analysts see a return to revenue and earnings growth next year, and Sirius XM happens to have topped Wall Street profit targets with ease over the past year. Lower interest rates could spur a rise in auto sales, a key driver for new satellite radio subscriptions. As a uniquely positioned media stock reaching a massive captive audience, Sirius XM deserves better than being cut by more than half this year.
2. PDD Holdings
Chinese growth stocks are rallying lately, and PDD happens to be one of the country’s fastest-growing players. PDD formerly operated as Pinduoduo, the namesake Chinese e-commerce site it operates. It’s now better known by stateside investors as the parent company of Temu, the operator of Chinese-sourced merchandise typically housed in stateside warehouses trading at ridiculously low prices.
Growth is on a tear. Revenue soared 86% in its latest quarter, and profitability more than doubled. This isn’t a fluke. Annual revenue has topped 90% in five of the past seven years. PDD is warning that margins will be tested in the near term as it rolls out initiatives to improve the platform. There are also fears of how trade tensions will play out for PDD. This is offset by the stock’s valuation. PDD is trading for just 16 times earnings, and less than 11 times next year’s bottom-line estimate. It’s a low multiple for a company growing so much faster.
3. Carnival
I owned three of the four publicly traded cruise lines heading into September. I completed the set by finally buying into Carnival. Why did I save the largest cruise line for last? The growth prospects or valuations may favor its peers, but Carnival is still destined to move higher as the rising tide of the industry lifts all ship operators.
I bought into Carnival ahead of its better-than-expected fiscal third-quarter earnings report at the end of September. Revenue and adjusted earnings per share rose 15% and 62%, respectively. Customer deposits hit another high for this time of the year, a good sign that the next few quarters will also be strong.
As a growing theme for my September shopping list, Carnival is also cheaper than the bullish fundamentals warrant. Carnival is trading for less than 15 times trailing earnings, and less than 11 times forward earnings. With Carnival aggressively paying down its debt, some key cost components moving lower, and passengers willing to pay more for a watery adventure, it looks like a bon voyage from here.
Rick Munarriz has positions in Carnival Corp., PDD Holdings, and Sirius XM. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
