July 19, 2022, BorgWarner Inc. (NYSE:BWA) and Yum! Brands, Inc. (NYSE:YUM)
The best stocks to buy now could be a beaten-down auto component stock and a fast food holding company.
Markets kicked off the week scorching hot yet gave up gains by the end of the day. After rising roughly 300 points, the Dow closed down 215.65 points (0.69%). The S&P also shed 0.84%, while the Nasdaq dropped 0.81%. As we brace for more turbulence with earnings and a potential 100 bp hike from the Fed, BorgWarner Inc. (NYSE:BWA) and Yum! Brands, Inc. (NYSE:YUM) could be two of the best stocks to buy now.
BorgWarner, first and foremost, is a deeply undervalued play on a potentially booming EV space. It is a prominent player in the auto components industry. Following two upgrades over the last week, it could have between 40% to 46+% of room to run. With the stock trading near 52-week lows, and the EV industry potentially worth $46 trillion by 2050, this is a generational bargain and, clearly, one of the best stocks to buy now. Especially as Europe continues to try weaning itself off of Russian fossil fuels and explores the ban of new combustion engine cars by 2035.
Yum! Brands is another one of the best stocks to buy now. A holding company for brands like KFC, Taco Bell, Pizza Hut Division, and the less known Habit Burger Grill, Yum! has everything you want in this environment. It has solid fundamentals, growth potential, and double-digit analyst upside. Consider this stock as inflation helps drive margins, and consumers look to spend less on food.
So while this period is still uncertain for the market, consider these two enterprises the best stocks to buy now.
BorgWarner Inc. (NYSE:BWA)
With EV-related stocks deeply discounted, keep an eye on this automotive component producer’s 46+% upside.
If you’ve seen the news lately, it’s evident that climate change is officially a climate emergency. Floods are terrorizing Australia, and wildfires are raging as countries in Europe reach record temperatures.
The time for widespread adoption of sustainable energy and electric vehicles should’ve happened yesterday.
Especially as Russia is about to tighten its noose around Europe by halting its fossil fuel supply.
That, in a nutshell, is why the deeply undervalued BorgWarner is one of the best stocks to buy now.
BorgWarner Inc. is a prominent player in the auto components industry and has long provided solutions for combustion vehicles worldwide. However, over the last few years, it’s focused on hybrid and electric vehicles.
Along with many other auto-related stocks, though, it’s deeply sold off in 2022.
However, with significant long-term upside for the EV industry, BorgWarner Inc. is one of the best stocks to buy now.
After all, its 2022 Sustainability Report released last month highlighted substantial progress.
If you’re focused on the long-term and trying to bargain hunt, this stock is a no-brainer at this level.
Deeply Undervalued With Astronomical Long-Term Growth Potential
The BWA stock has sold off deeply in 2022 and currently trades -31.8% below its year-to-date highs.
When you consider several of its valuation multiples, coupled with the long-term potential of the EV industry, BorgWarner’s case as a deep value stock becomes even stronger. Consider the following:
- 4x trailing P/E
- 3x forward P/E
- 2x price-to-book
- 28 PEG
- 6x trailing price-to-sales
- 5x forward price-to-sales
Coupled with these dirt-cheap multiples is BorgWarner’s outstanding growth potential.
- 74% projected earnings growth in the coming year
- Net income could grow by 79.9% and average a 26.5% growth rate over the next five fiscal years
- 3%5-year revenue CAGR
Furthermore, beyond these multiples and growth projections, BWA’s valuation also implies a solid free cash flow yield of 5.3%.
The above factors are all you want when trying to find one of the best stocks to buy now. But for BWA, the buy factors look even more promising from here.
Solid Margins, Stable Cash Flows, and Dividends Add to BorgWarner’s Value Story
Despite declining so much year-to-date, BorgWarner is in a prime position as one of the best stocks to buy now because its cash flows can sufficiently cover interest payments and its margins indicate liquidity, profitability, and efficiency. Consider its 19.0% gross margin and 10.0% ROCE as evidence.
Moreover, BWA has a substantial dividend yield of over 2.0%, which could see a 4.0% 5-year CAGR.
Wells Fargo’s Recent $57.00 Price Target Represents a 46+% Upside
8 Wall Street analysts offered 12-month price targets for BorgWarner in the last 3 months. BWA currently has a street-high price target of $57.00, a low of $30.00, and an average of $45.25. Its average price target represents a 32.46% upside from July 18, 2022’s $34.16 close.
What’s notable about these price targets, though, is that BWA received a $57.00 street-high price target days ago from Wells Fargo after the bank reiterated its OVERWEIGHT rating.
That represents a 46.37% upside from its latest close (July 18, 2022).
In addition, Deutsche Bank just yesterday (July 18, 2022) upgraded its BWA rating from HOLD to BUY and hiked its price target from $43.00 to $48.00. This is also well above its average price target and represents a 40.52% upside from July 18’s close.
BWA’s year-to-date low and high are $32.28 and $50.09, respectively.
Yum! Brands, Inc. (NYSE:YUM)
Fast food outperforms during inflation; this prominent player just received a price target representing an almost 20% upside.
That alone makes it one of the best stocks to buy now in this current environment. Historically, fast food sales perform considerably better than casual diners in inflationary environments. Stephens analyst James Rutherford expanded on this fact in a recent note and reported how we saw a similar trend in 2008 and 2009.
Bar none, fast food, compared to casual dining, has a stronger value proposition as people look to cut costs.
Especially as the crisis in Ukraine, aka Europe’s breadbasket, continues to cause food prices to alarmingly rise.
Strong Margins and Growth Prospects
Management at Yum! Brands have aggressively repurchased shares, despite the stock not doing quite as bad as others in 2022 and soaring over 9.3% in the last month. That alone tells you that they believe in the prospects for their fast food units in this current environment and the potential for the stock to build on its recent momentum.
Based on management’s activity and the stock’s recent uptrend, growth projections are looking strong, including its earnings which are expected to grow by 15.91% in the coming year.
Do a deeper dive into Yum’s fundamentals, though. It looks like a tasty stock to bite into at a reasonable level based on its 0.43 PEG ratio and a valuation that implies a 4.1% free cash flow yield.
Its 7 out of 9 Piotroski Score, first and foremost, indicates that the Company operates with healthy Liquid Balance Sheets, Profitability, and Operating Efficiency. Many of its fundamental margins add further context to this, including its
The Yum! Dividend is Yet Another Reason Why This Stock is Can’t Miss
Another top reason Yum! Brands is one of the best stocks to buy now due to its dividend.
YUM currently has a substantial dividend yield of 1.93%. Furthermore, it’s increased its dividend for 5 consecutive years. The dividend growth train could keep moving with a dividend payout ratio of 41.38% and a projected dividend payout ratio of 42.30% next year.
Perhaps that’s why the stock has dividend growth projections of 14.0% at a 10.8% 5-year CAGR.
Recent Morgan Stanley Activity Points to an Almost 20% Upside
TipRanks notes that 17 Wall Street analysts offered 12-month price targets for YUM in the last 3 months. YUM currently has a street-high price target of $148.00, a low of $120.00, and an average of $134.38 . Its average price target represents a 13.42% upside from July 18, 2022’s closing price of $118.48.
But based on recent analyst activity, you can throw its average upside out the window.
Yesterday (July 18, 2022), Morgan Stanley maintained an OVERWEIGHT rating and slapped a $142.00 price target on YUM. This represents a 19.85% upside from July 18, 2022’s close. That same day, Goldman Sachs also upgraded it from SELL to BUY.
YUM’s year-to-date low and high are $108.37 and $139.63, respectively.