10 Deep Value Stocks To Buy Now

Key Concepts

• Deep Value Stocks: Stocks trading significantly below their intrinsic value, often due to temporary market sentiment or overlooked fundamentals.
• Barron's: A financial publication known for its stock analysis and valuation.
• Sum of the Parts Analysis: Valuing a company by estimating the worth of its individual business segments.
• Forward Earnings Multiple (PE Ratio): The current stock price divided by the projected earnings per share for the next fiscal year.
• Free Cash Flow Yield: Free cash flow per share divided by the stock price, indicating the cash generated relative to the stock's value.
• Consumption-Based Model: A business model where revenue is generated based on the usage of a product or service.
• Network Effects: A phenomenon where the value of a product or service increases as more people use it.
• Depreciation Cycle: The accounting process of allocating the cost of a tangible asset over its useful life.
• Total Addressable Market (TAM): The total revenue opportunity available for a product or service.
• Keyman Risk: The risk that a company's performance is heavily dependent on a single individual.
• Federal Reserve Interest Rate Cuts: Reductions in the benchmark interest rate by the central bank, influencing borrowing costs and investment decisions.
• Robo Taxis: Autonomous vehicles designed for ride-sharing services.
• Human-in-the-Loop Framework: A system that combines human oversight and input with AI processes.
• Workforce Solutions (The Work Number): A service that verifies employment and income for individuals.
• Operating Leverage: The degree to which a company's operating costs are fixed.

Barron's Top 10 Deep Value Stock Picks and Analysis

This episode of the Joseph Carlson Show delves into 10 "deep value" stock picks identified by Barron's, offering an analysis of each recommendation and its underlying thesis. The host also discusses recent market news, including Federal Reserve interest rate adjustments and Waymo's safety data.

1. Option Care Health (Infusion Therapy Leader)

• Barron's Thesis: Option Care Health is undervalued due to the growing demand for at-home medical services, its position as the largest infusion therapy provider, and a favorable valuation.
• Key Points:
  • Growing Market: The infusion therapy market is projected to grow at an 8.6% annual rate through 2030, driven by an aging population seeking convenient at-home care.
  • Market Share Potential: Option Care operates as both a managed care company and a specialty pharmacy with over 5,000 clinicians, positioning it to capture market share.
  • Resilient Earnings: The company has a diversified private payer profile, with only 12% of revenue from direct governmental programs in 2024, providing a cushion against legislative changes. No single therapy represents more than 5% of its revenue.
  • Valuation: Trades at a PE of 16 and a free cash flow yield of 5.4%.
• Host's Reaction: Finds the thesis solid with growing earnings and free cash flow. However, notes concerns about debt and industry volatility in healthcare. He personally avoids healthcare investments but finds this one interesting.

2. Twilio (Software Winner)

• Barron's Thesis: Twilio, despite a recent earnings hit, remains a software winner with consistent sales performance and significant growth potential in the communication services market.
• Key Points:
  • Consistent Sales Performance: Twilio has not missed sales expectations in at least 20 consecutive quarters, according to FactSet.
  • Consumption-Based Model: Charges a few cents per communication, allowing revenue to grow with increased usage.
  • Massive Market Opportunity: Global spend on communication services is projected to reach $119 billion by 2028.
• Host's Concerns: Worries about customers, like Uber, becoming too large and building their own communication APIs internally, thus reducing reliance on Twilio. Also notes that telecom providers take a significant portion of margins.
• Valuation: Trades at a 21 PE ratio with a 4.5% free cash flow yield, but stock-based compensation impacts cash flow.
• Host's Reaction: Agrees with the valuation but feels nervous due to limited margin upside and prefers Google at a similar PE.

3. U-Haul (Moving and Storage Leader)

• Barron's Thesis: U-Haul shares could rebound as earnings rise, driven by its dominant market share, extensive fleet, and strategic expansion into self-storage.
• Key Points:
  • Market Dominance: Holds over 50% market share in moving, with nearly 200,000 trucks and 137,000 trailers. 90% of the US population is within 5 miles of a U-Haul facility.
  • Network Effects: Its vast network creates logistical advantages.
  • Profitability Boost: Expected to rise as older truck depreciation cycles conclude and newer self-storage facilities fill up (adding 10% annually to its storage footprint).
• Host's Reaction: Finds the thesis interesting but passes on this investment.

4. E.L.F. Beauty (Cosmetic Business Disruptor)

• Barron's Thesis: E.L.F. Beauty is redefining the cosmetic business through effective social media marketing, online sales, and strategic retail partnerships, leading to faster growth than competitors.
• Key Points:
  • Differentiated Strategy: Reaches customers via social media, online sales, and select retail locations.
  • Value Positioning: Offers high-quality products at significantly lower prices, providing pricing flexibility.
  • Customer Expansion: Partnerships with Dollar General are attracting first-time buyers. Aggressive advertising on TikTok targets younger shoppers.
  • Marketing Investment: Spent over $78 million on marketing and digital investments in Q2, up 5% year-over-year.
  • Consistent Performance: Management provides conservative guidance and consistently beats analyst sales estimates.
• Host's Reaction: Likes the thesis but cautions about the volatility of the beauty industry, citing Estée Lauder's past performance.

5. Ino Data (AI Model Enhancement)

• Barron's Thesis: InoData is crucial for making AI models smarter by cleaning and validating data, with five of the "Magnificent Seven" tech leaders as clients.
• Key Points:
  • Clientele: Five of the "Magnificent Seven" tech leaders are using its services.
  • Contract Growth: A major customer's contract grew from $8 million in 2023 to a $135 million annualized revenue run rate.
  • Core Business: Cleans inaccurate, incomplete, or irrelevant data using proprietary technology and over 6,000 consultants.
  • Human-in-the-Loop: Combines human expertise with AI to annotate and validate information, fine-tuning large language models for tone, bias reduction, and error minimization.
  • Growing Demand: The need for data validation is expected to grow exponentially as AI applications become more autonomous.
• Host's Reaction: Notes that the stock has already seen significant gains since Barron's initial pick, but acknowledges the compelling business model and growing demand for data validation.

6. Verdif (Power and Cooling Equipment)

• Barron's Thesis: Verdif, a provider of power and cooling equipment for data centers, is a quality buy at a discounted price, with a strong track record of beating earnings expectations and potential for margin expansion.
• Key Points:
  • Data Center Infrastructure: Specializes in cooling equipment essential for the ongoing build-out of data centers.
  • Consistent Performance: Has surpassed annual estimates for the top and bottom line in the past six quarters and beaten EPS forecasts for the past 10 quarters.
  • Margin Expansion: Management forecasts adjusted operating margins of 20% for Q3, up from 18.5% in Q2, due to supply chain efficiencies.
• Host's Reaction: Likes the thesis but suggests investors might be better served by directly investing in big tech companies that benefit from Verdif's services.

7. Aptive (Automotive Business Breakup)

• Barron's Thesis: Aptive is undervalued because its higher-margin safety and software business is being overshadowed by its automotive segment. A breakup could unlock value.
• Key Points:
  • Segmented Value: The safety and software business has better sales, double the EBITDA margins, and potential to expand beyond the auto customer base.
  • Potential Upside: Shares are trading around $83, with a target of $100 (25% upside).
• Host's Concerns: The primary risk is investors continuing to view both segments as solely automotive companies, which could lead to a stock price decline.
• Host's Reaction: Likes the thesis and the potential of the software business, but has no interest in the automotive part.

8. Cash America Pawn (Pawn Shop and Micro-lending)

• Barron's Thesis: Cash America Pawn is a deep value opportunity due to its massive scale, unique micro-lending business model, and compelling valuation.
• Key Points:
  • Market Dominance: The largest pawn store operator in the US and Mexico with over 3,300 retail locations, built through acquisitions.
  • Micro-lending Model: Offers small, collateral-backed loans with no credit checks or reporting, providing quick, hassle-free transactions.
  • Dual Revenue Streams:
    • Loan repayment with interest (APRs can exceed 200% on small loans).
    • Monetization of forfeited merchandise.
  • Lucrative for Jewelry: High gold and silver prices increase borrowing power and inventory value.
  • Valuation: Trades at a forward PE of approximately 17 (2025 estimates), dropping to 14 (2026 forecast), significantly below its historical average of 23.
• Host's Reaction: This is his favorite pick among the list. He highlights the unique niche, the micro-lending service, and the strong business model. He believes it has the potential for long-term compounding.

9. QXO (Logistics Firm by Brad Jacobs)

• Barron's Thesis: Investors are banking on QXO, founded by serial entrepreneur Brad Jacobs, to be his next big success story, following his previous ventures like United Rentals and XPO.
• Key Points:
  • Brad Jacobs' Track Record: Founded successful companies like United Waste Systems, United Rentals (up over 400% in 5 years), and XPO (up nearly 340% in 5 years).
• Host's Concerns: While acknowledging Jacobs' history, he expresses concern about "keyman risk" and prefers companies with more established moats and longer track records. He suggests this type of bet should be a smaller portfolio allocation.

10. JBS (Meat Packer)

• Barron's Thesis: JBS, the largest global producer of beef and poultry, is a quality meat packer trading at a deep discount to its peers, with growth prospects from a 5-year expansion plan.
• Key Points:
  • Scale and Dominance: Number one producer of beef and poultry globally, number two of pork.
  • Deep Value Valuation: Trades at just seven times projected 2025 earnings ($1.92 per share), significantly cheaper than competitors like Tyson.
  • Growth Plan: A 5-year plan to spend $1 billion annually on expansion, including a US sausage plant and expanded American pork facilities.
• Host's Reaction: Finds the thesis fair but prefers the pawn store pick due to its diversification and lower capex needs. He generally avoids this sector.

Market News and Analysis

Federal Reserve Interest Rate Cut

• Key Event: The Federal Reserve officially approved a 25 basis point (0.25%) interest rate cut.
• Market Reaction: The market had largely priced this in (around 90%), so there was no significant immediate stock market surge.
• Future Signal: The Fed signaled two more rate cuts are expected before the end of the year, driven by concerns over the US labor market.
• Impact:
  • Positive for Markets: Lower interest rates make borrowing cheaper, encouraging investment in assets like stocks, bonds, and real estate.
  • Opportunity Cost of Cash: Holding cash becomes less attractive as interest rates fall, pushing investors towards income-generating assets.
  • Housing Market: Expected to benefit from lower borrowing costs.
  • Job Growth: Potentially positive for future job growth.

Waymo's Safety Data and Partnership Expansion

• Safety Data: Waymo released safety data showing robo-taxis are "orders of magnitude safer than humans."
  • Crash Reduction: 91% reduction in serious injuries or worse crashes.
  • Airbag Deployments: 79% reduction in airbag deployments.
  • Extrapolation: If all vehicles were Waymo-like, it could eliminate approximately 9% of human deaths, significantly increasing life expectancy.
• Partnership with Lyft: Waymo is partnering with Lyft to launch robo-taxis in Nashville in 2026.
  • Impact on Uber: This move caused Uber's stock to drop 5%, as it increases competitive pressure on Uber's autonomy roadmap.
  • Impact on Lyft: Lyft's stock rose 13% on the news.
• Host's Perspective: Waymo (and by extension, Alphabet/Google) is in control of this technology. Their partnerships with multiple ride-sharing competitors demonstrate their dominant position, as neither Lyft nor Uber can significantly impact Google's stock price, but Waymo's decisions dramatically affect theirs.

Investor Questions and Host's Responses

Quarterly vs. Semi-Annual Reporting

• Question: Should financial filings move from quarterly to semi-annual, and does more frequent reporting equate to better performance?
• Host's Stance: Strongly advocates for maintaining quarterly reporting.
• Arguments Against Semi-Annual Reporting:
  • Shareholder Rights: Investors are part-owners of a company and have a right to transparent and frequent updates on their investment's performance. Six months without insight is too long.
  • Lack of Evidence: There's no concrete evidence that semi-annual reporting improves company performance. The US market's outperformance compared to Europe (which has more semi-annual reporting) is not solely attributable to reporting frequency.
  • Conflation of Reporting and Thinking: Quarterly reporting does not necessitate "quarterly thinking." Companies can disclose frequently while maintaining a long-term perspective (e.g., Costco, Amazon, Walmart).
  • Transparency: Frequent reporting, even monthly (like Costco's sales reports), can reduce stock volatility and provide investors with timely revenue insights without forcing short-term management decisions.
• Proposed Solution: If regulatory burden is an issue, focus on developing better technology to make quarterly reporting more seamless and easier, rather than removing a fundamental shareholder right.

Microsoft Dip

• Question: Did the host consider buying the dip in Microsoft?
• Host's Response: No, he doesn't see a significant dip in Microsoft at its current price of $500 per share. He finds its valuation much higher than other companies he analyzes.

Inovatech (INIT)

• Question: INIT is trading at the same price as a year ago; will the host load up?
• Host's Response: He is holding INIT but is cautious due to its valuation. He is concerned that if INIT is treated like a traditional software company (e.g., Adobe, Salesforce), its valuation could be negatively impacted, despite its strong fundamentals.

Open Door (ODP)

• Question: Is there a thesis for Open Door beyond its large TAM, given its losses and unproven algorithm scalability?
• Host's Response: Largely agrees with the commenter. He acknowledges the previous episode's interesting story about Open Door being a potential "100 bagger" but emphasizes that the current thesis is heavily reliant on potential and TAM. He highlights the unique and varied nature of homes as a significant challenge for scaling software-based solutions. The potential is already priced into the stock.

Netflix (NFLX)

• Question: Is the host selling Netflix?
• Host's Response: No, he still holds all his shares and has not sold Netflix in years. He considers it too good a company to sell, despite its higher valuation and potential short-term price fluctuations.

Equifax vs. TransUnion and Experian

• Question: What makes Equifax superior to TransUnion and Experian?
• Host's Response: The key differentiator is Equifax's "Work Number" service, which provides workforce solutions (verifying employment, income, and work history). While TransUnion and Experian have some similar offerings, Equifax's Work Number is significantly more scaled and a crucial part of its appeal. He would not buy Equifax without this product.

Duolingo (DUOL)

• Question: Concerns about Duolingo's high PE ratio, profit-taking, and what might be missed.
• Host's Response:
  • Not a Value Stock: Duolingo is a fast-growing company, not a beaten-down value stock.
  • Bearish Concerns:
    • AI Translation Tools: The rise of AI translation (e.g., AirPods, Meta Glasses) could reduce the motivation to learn languages.
    • Social Media Backlash: Potential negative impact is still being assessed.
    • Valuation: High PE ratio.
  • Bullish Factors:
    • Massive Growth: Nearly doubling earnings year-over-year (70% growth).
    • Operating Leverage: Highly profitable with a great cost structure.
    • Chess Product: Duolingo's chess offering has surpassed one million daily users and is expanding the market by attracting beginners. This is a separate growth driver from language translation.
  • Host's Stance: He is not overly concerned about the PE ratio given the growth. He continues to hold Duolingo despite its volatility, believing in its long-term upside potential.

Google (GOOGL)

• Question: Is it too late to get into Google at current prices?
• Host's Response: No, he believes there is still more upside.
  • Increased Investment: He has significantly increased his weighting in Google, becoming incrementally more bullish.
  • Key Assets: Owns Waymo, YouTube (expected to double in value in 5 years), and Google Cloud (also expected to double).
  • Subscription Growth: YouTube Premium has over 100 million subscribers, and other subscription businesses are growing.
  • Search and Gemini: The core search business and Gemini AI are significant assets.
  • Valuation: Trades at a 25 PE multiple, which he considers attractive for the company's overall value.
  • Short-Term Caution: Acknowledges that profit-taking and short-term dips are possible, but the long-term outlook (5-10 years) is very positive.

Conclusion

The episode provides a detailed look at Barron's deep value stock recommendations, offering both praise and critical analysis. The host emphasizes the importance of thorough research, understanding business models, and considering individual risk tolerance. He also touches upon significant market news, highlighting the implications of the Federal Reserve's interest rate cuts and the transformative potential of autonomous vehicle technology. The Q&A segment addresses various investor concerns, reinforcing the host's investment philosophy, particularly his strong stance on shareholder transparency and the value of long-term investing.