To The Moon

When searching for bargain stocks, it's easy for investors to search for companies trading at low price-to-sales (P/S) or price-to-earnings (P/E) multiples. That method will provide ample choices, but not all will make good investments. It's essential to dig into the company's results to determine whether it's a value play or a value trap.

Both Moderna (NASDAQ:MRNA) and Target (NYSE:TGT), trade for a bargain today but are solid companies with vast potential, making them worth buying and holding forever.

1. Moderna

Considering the heights that Moderna's stock reached at times in 2021, it might surprise some to think of it as a bargain stock. But as of this writing, it is trading at a P/S of 8 and P/E of 13, both near all-time lows. Clearly, the market has its value entirely tied to its COVID-19 vaccine and any future potential is yet to be priced into the stock. While that may make sense to some degree, as no biotechnology company's drug pipeline is ever guaranteed to pay off, the proven success of mRNA technology in the COVID vaccine should lead to some of Moderna's other products making it to the commercial market.

Moderna's results over the past year require some context. In the third quarter, Moderna's revenue was $5 billion, up from $157 million one year earlier, good for an increase of over 3,000%. While that sounds impressive, it's important to remember that in Q3 2020 Moderna still did not have any approved products on the market. (Moderna's COVID-19 vaccine is approved by the FDA under Emergency Use Authorization, or EUA, and has technically not received full approval from the federal agency.) That said, revenue did grow sequentially 125% from Q1 to Q2 and 14% from Q2 to Q3.

There's still money to be made from treating COVID, as Moderna's vaccine for children under the age of 13 is yet to be approved, but it's understandable to view that revenue stream as one that will eventually fall off. However, there's another vaccine, for cytomegalovirus (CMV), that is currently in phase 3 trials. Approval of this CMV vaccine would be great for society (CMV the leading infectious cause of birth defects) and also Moderna's business as it looks beyond the COVID vaccine.

Besides CMV, there are a total of 34 drugs in Moderna's pipeline, several of which are in clinical trials. It's reasonable to assume one or more of these will secure approval, and if that happens, Moderna's current valuation is a steal.

The market, it seems, is currently doubting the longevity of Moderna's COVID-19 vaccine revenue stream and has shaved off nearly 50% from the company's market capitalization since August. However, it clearly is ignoring Moderna's solid pipeline of drugs that uses similar technology as demonstrated with the COVID-19 vaccine. And that's why I believe the stock is undervalued.

2. Target

Target has been a strong performer both as a business and a stock over the past three years, growing revenue and net income 37% and 131%, respectively. Over that same time period, Target has repurchased almost 500 million of its shares and continues to be a Dividend King, a term used to describe companies that have increased their dividend for at least 50 consecutive years. The most recent results have also been impressive. In Q3, year-over-year revenue grew 13% and net earnings increased 47%, suggesting Target remains healthy and thriving.Target's also made a strong investment in the future. In Q3, Target reported that year-over-year digital sales grew 29%, following last year's 155% increase. Same-day services – which are things like in-store and drive-up pickup – grew nearly 60% on top of last year's 200% gain. These results show that Target is well prepared for the continuing shift in customer preferences toward these digitally driven retail habits.

Target isn't going to grow like a high-flying software company, but it's been putting up impressive results and seems well-positioned for that to continue. With the company having a P/S of 1 and P/E of 17, the market is offering shares on sale. With its shareholder-friendly capital allocation strategy and ever-increasing dividend, Target is a stock to buy and hold forever.