Buying low and selling high is what investing comes down to. Often, however, investors get spooked when prices are low and avoid struggling stocks, thinking that they are destined to go even lower. But when it comes to quality businesses, you should relish the opportunity to buy stocks when their prices are low as it can mean great returns later on.
Three stocks that are struggling today are Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Merck (NYSE: MRK), and Block (NYSE: XYZ). These stocks are trading near their 52-week lows. However, that shouldn't deter you from buying them. Here's why they can be fantastic investments to load up on right now.
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Alphabet
Shares of Alphabet have been sinking amid worries that a breakup of the company may be inevitable due to antitrust issues. Shares of Alphabet are down 16% since the start of the year, and the stock was 10% away from its 52-week low of $142.66.
It's trading at just 17.8 times its trailing earnings, which is modest compared to the average stock on the S&P 500, where the average price-to-earnings (P/E) multiple is nearly 23.
Alphabet is trading at a discount given the uncertainty around its future, but I don't believe the risk is significant enough to dissuade investors from owning it. A breakup of the business might even unlock value for investors in the long run. And while artificial intelligence may be changing the world of tech, Alphabet is at the forefront of that with its Gemini chatbot.
This is still a massive company that generated $112 billion in earnings over the trailing 12 months. And with high-powered assets such as Google Search and YouTube, it still looks like a fantastic long-term buy.
Merck
Pharma company Merck has been performing a bit worse than Alphabet this year with its shares down 22%. It hit a new 52-week low last week as investors grow concerned about the tariff risk facing the company.
Last month, the company released its first-quarter numbers, which showed a 2% decline in sales for the first three months of the year, with the top line coming in at $15.5 billion. But on top of the troubling top-line performance, Merck also said that it anticipated $200 million in costs as a result of tariffs this year. China is an important market for Merck, putting pressure on the stock recently as China has been hit heavily with tariffs. But the situation is also volatile. On Monday, the U.S. and China both agreed to significantly reduce tariff rates for the next 90 days.
If you're a long-term investor, however, you shouldn't worry too much about tariffs because in the grand scheme of things that is likely to be a temporary problem. With Merck stock trading at a P/E ratio of only 11.7, investors are well compensated for the risk and uncertainty that comes with the company. There's a good margin of safety for investors who are worried about the tariff risk and the growth challenges Merck is encountering.
And the business may not be facing the considerable risks that its discounted valuation may suggest. The company is looking to develop a GLP-1 weight loss drug and is launching a new version of its popular cancer drug, Keytruda, in an effort to offset possible declines in revenue due to a loss of patent protection in the future. There's reason to remain bullish on Merck's growth prospects in the long run. And at a discounted price, the stock could be a steal of a deal.
Block
The most beaten-down stock on this list is Block. The fintech crypto stock declined by 34% this year. The company recently reported underwhelming earnings numbers, which sent its shares into even more of a tailspin.
Amid a downturn in the economy, including a potential recession, Block could face some challenges. But in the long run, it can still be in an excellent position to grow. Its point-of-sale devices enable merchants to easily accept credit card payments while its Cash App makes it easy for individuals to transfer money and Bitcoin.
The company has been bullish on Bitcoin and that is now a big part of its business, with Bitcoin-related revenue representing 40% of its top line. The downside is that this can introduce a lot of volatility to its bottom line. In the company's first-quarter earnings, which ended on March 31, Block incurred a $93 million remeasurement loss related to Bitcoin. That line item weighed on its profits, but if you look at the company's operating profit of $329 million, which came before that figure, then its earnings rose by 32%.
While there is some near-term risk related to macroeconomic conditions, Block still looks like a strong buy given its modest P/E multiple of 12. And even when factoring in its expected earnings (based on analyst estimates), its forward P/E is still less than 14. For buy-and-hold investors, this can be a solid stock to load up on right now as it should grow along with the economy.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Bitcoin, Block, and Merck. The Motley Fool has a disclosure policy.
