Affordable Intelligence-packed Stocks to Invest in Now with a $1,000 Budget
Exploring budget-friendly stocks in an expensive market can be quite the challenge. Some stocks appear affordable based on traditional valuation measures, yet their growth potential may be questionable. Conversely, there are expensive-looking stocks that, in the long term, prove to be real bargains.
Two stocks that fit this description are telecom giant AT&T (T 0.94%) and video game engine developer Unity (U 0.30%). Value-oriented investors with a $1,000 budget should consider adding both to their portfolio for various reasons.
Winning over subscribers and buybacks
Over the past 18 months, shares of AT&T have seen a substantial increase. The stock soared following its July 2023 bottom, at a rate of 65%, outpacing the S&P 500 during the same period. However, despite this significant rally, AT&T's stock remains reasonably priced, especially considering its future cash flow guidance for 2025.
According to AT&T's guidance, the company is expected to generate an impressive $16 billion in free cash flow this year, growing by $1 billion annually until 2027. With shares trading at around 10 times this free cash flow, AT&T's stock appears undeservedly inexpensive.
The turnaround in AT&T's stock price can be attributed to several factors. Firstly, the company has exited the media business following a string of expensive and unsuccessful acquisitions. With the imminent sale of its remaining stake in DirecTV, AT&T has returned its focus to its core telecom business.
Secondly, the company has recently begun to consistently add subscribers to its wireless and fiber internet services. In the wireless segment, AT&T has welcomed a minimum of 350,000 new net postpaid phone subscribers quarterly for the past two years, and subscriber churn has reached historically low levels. In fiber, AT&T has gained more than 200,000 subscribers quarterly as it aims to expand its fiber network to reach 50 million locations by 2029.
Moreover, AT&T has shown progress in reducing its debt and has now resumed its share buyback program. The company expects to invest approximately $20 billion in share repurchases over the following three years, in addition to its regular quarterly dividend payments. Given the relative cheapness of AT&T's stock based on its free cash flow, share buybacks could be an effective use of capital for boosting the stock price by increasing earnings per share.
In summary, AT&T remains a solid long-term value play in the telecom sector due to its strong focus on subscriber growth, successful debt reduction, and pending share repurchases.
A dynamic video game platform
At first glance, Unity might not appear as an inexpensive stock, given its valuation of around $9 billion and its lack of profitability. However, for value-focused investors willing to pursue turnaround opportunities, Unity's current market price may prove to be an enticing bargain.
Unity has faced a turbulent period following the controversial introduction of its expensive and unpopular Runtime fee, which prompted a backlash from developers. In response, Unity underwent a company reset that resulted in a massive 25% layoff and other cost-cutting measures. A new CEO took over in May 2023, and he has since undertaken several positive initiatives to strengthen Unity's position in the market.
One of the key developments under the new leadership is the scrapping of the hated Runtime fee and its replacement with higher subscription pricing for large customers. In addition, Unity has introduced AI-powered add-ons to generate additional revenue and optimize advertising returns for its customers. The company is also actively rebuilding its data and machine learning stack for its advertising business.
Although Unity's turnaround will take time, the company's dominant position in the video game engine market provides a solid foundation for long-term growth. Along with Epic Games' Unreal Engine, Unity is one of the default choices for developers, creating a networking effect. Developers who choose to use another platform may face longer development cycles and increased risks.
For investors, Unity's long-term potential comes down to its ability to successfully navigate the challenges it faces and capitalize on its market position to build a sustainable and profitable business.
In conclusion, both AT&T and Unity offer value-oriented investors attractive long-term growth prospects. While AT&T remains inexpensive relative to its future free cash flow, Unity presents a turnaround opportunity due to its dominant position in the mobile gaming industry, unique data advantages, and potential to grow its advertising business.
Despite AT&T's substantial stock increase over the past 18 months, its price remains reasonably affordable considering its future cash flow guidance, making it a potential addition to a budgeted portfolio for value-oriented investors.
Unity, although currently valued at around $9 billion, could be an enticing bargain for value-focused investors willing to pursue turnaround opportunities, given its dominant position in the video game engine market and potential for long-term growth due to its market position and initiatives under new leadership.
