Analysts often lump stocks into binary categories. Either a company is a growth play or a value name. It can deliver large capital gains or a meaningful dividend.
While these mental frameworks may often help categorize companies, these limitations don’t always apply. In fact, there can be cases where a bargain high-yield stock also has considerable growth and capital gains potential as well.
For these three high-yield stocks in particular, traders are waking up to the possibility that their business outlooks are much brighter than had been previously realized.
OneMain Financial (OMF)
For the past year now, there have been all sorts of media reports about an imminent problem with American consumer spending. Yet, so far, the downturn and possible recession have failed to materialize.
That’s great news for OneMain Financial (NYSE:OMF), a leading high-yield personal lender. OneMain makes both secured and uncollateralized loans to folks with on-average, medium-tier credit ratings. In addition to its traditional personal loans, it has recently expanded into auto finance and credit cards.
The firm came about as a unit of Citigroup (NYSE:C) before becoming an independent company, and OneMain has been able to use that experience to develop a robust data set and tools for underwriting loans and making accurate credit assessments.
OneMain’s loans come at a high average interest rate, and the firm makes large profits as long as the economy keeps humming along. With the economy potentially heading toward a soft landing and inflation moderating, OneMain’s outlook seems reasonably bright.
Traders are starting to agree, with OMF stock recently rallying toward 52-week highs. Even after the jump, though, shares still go for eight times forward earnings while offering an 8.6% dividend yield.
Stellantis (STLA)
There’s a change in the air in the auto industry. The next-generation electric vehicle stocks have been in a major slump over the past year. Investors are focusing on profitability over other metrics, which has caused firms like Rivian Automotive (NASDAQ:RIVN) to see their share prices tank.
On the other side of the spectrum, the legacy automakers are soaring. Take Stellantis (NYSE:STLA) for example. STLA stock is now up from a low of $15 last summer to $26 now.
As investors prioritize profitability and strong balance sheets, Stellantis’ appeal becomes obvious. The firm is trading for less than five times forward earnings. It can use its robust cash flows to fund its investment in next-gen vehicles. This is already paying off, with Stellantis hitting the No. 1 position in battery electric vehicle (BEV) market share in Germany recently.
Another nice perk with several of the legacy automakers, including Stellantis, is that they offer generous dividends. STLA stock is currently paying a 5.6% dividend yield on top of its large share buyback program.
Credicorp (BAP)
Credicorp (NYSE:BAP) is Peru’s largest bank and financial institution. It is known for its retail banking operations, but it also runs an investment bank with a significant presence both in Peru and other regional markets such as Colombia and Chile.
Credicorp has quietly turned into a leading South American FinTech operation. That’s thanks to Yape, which is the bank’s payment, money transfers, and microlending app. Yape has grown at an enormous clip and now counts more than 11 million monthly average users, which amounts to roughly a third of the entire population of Peru.
Normally, investors would expect to pay a high price for leading payments and e-commerce firms like Yape. But, because it is hidden within a bank, the valuation remains downright enticing. Even after BAP stock’s run-up in recent months, Credicorp shares still go for around nine times forward earnings and offer a 4% dividend yield with the likelihood of substantial dividend increases in coming years.
On the date of publication, Ian Bezek held a long position in BAP stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
