The Motley Fool

I believe these 3 stocks are absurdly cheap right now

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Dial being turned up to 'high'
Image source: Getty Images.

Since its IPO at the beginning of last year, gaming firm JackpotJoy (LSE: JPJ) has struggled to win over investors.

The reason for investor caution is clear. The company is drowning in debt. At the end of 2017, JackpotJoy had an adjusted net debt balance of £387m and an adjusted leverage ratio of 3.6 times.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

However, while the debt mountain is concerning, JackpotJoy is a cash cow and it’s rapidly paying off creditors. The company generated a free cash flow from operations of £97.8m last year, giving a free cash flow yield of 15.5%. 

Management is committed to cleaning up the balance sheet over the next few years and it has the resources to do so. A recent trading update declared that revenues during the first two months of 2018 have increased by 12%. That puts the company on track to generate a similar debt-reduction performance again in 2018, as well as meeting other obligations.

And once debt is brought down to a more sustainable level, I believe JackpotJoy will start returning excess cash to investors, so this could also be a future dividend champion.

Less than cash 

Another out-of-favour recovery play I like is Game Digital (LSE: GMD).

Like many of its high street peers, Game is suffering from its high fixed cost base (rental leases), rising costs overall, as well as shifting consumer shopping habits. These pressures resulted in the group announcing a 56% decline in profit before tax from its core retail operations for the 26 weeks ended 27 January. 

Thanks to a positive £2.6m contribution from its growing Esports business for the period, overall profit only declined 26%. But more importantly, Game generated £32.2m in cash from operations during the period, up 25.3% year-on-year. 

Game ended the period with £85m in cash and equivalents with almost no debt, compared to a market capitalisation of £63.6m at the time of writing. Put simply, the company as a whole is now worth less than the value of cash on its balance sheet, making it a traditional value play.

Including intangible assets, the shares are trading at a price-to-book value of 0.5.

Misleading figures 

My final ‘absurdly cheap’ pick is motor retail and aftersales company Lookers (LSE: LOOK)

Shares in this car dealer have lost more than 27% of their value over the past 12 months because of concerns about the state of the car market in the UK. Indeed, after years of above-average growth, fuelled by easy credit, new car sales slumped 15.7% in March, extending the run of falling sales to 12 months. As a result, fearing bad news ahead, investors have fled car stocks.

I believe this presents an excellent opportunity for value investors. You see, while headline numbers show car sales in the UK are collapsing, according to official figures from the Department of Transport the average age of vehicles on Britain’s roads is now more than eight years, its highest level since the turn of the century. Nearly 20% of cars are at least 13 years’ old. Sooner or later, drivers will have to replace these vehicles. 

And when sales growth does pick up, shares in Lookers could see a substantial re-rating. The stock is currently trading at a forward P/E of 6.7, which, in my opinion, is factoring in the worst case scenario and leaves no room for positive surprises.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.