As growth stocks give up their premium multiples, investors have been betting that the recent trend toward “value” stocks will really kick in and reward investors who bet on stability and low valuations over growth and growth potential. Maybe that tendency to move to “value” will continue, who knows — it’s hard to have any real confidence about whether a jolt to the markets over the past few months is a real “sea change” that will lead to entirely new trends, or just a little reset — but the newsletters are ready. The Motley Fool is out promoting its “12 Top Value Stocks for 2022,” which is a report you get for signing up for their “upgrade” Market Pass service ($799/yr, runs what sounds like a “greatest hits” portfolio that mines several of the popular Fool letters for ideas), and in promoting that service they’ve been sending out teaser emails in recent days.

Which is where we come in, naturally — what ideas are they hinting at in those ads? Might we find something interesting for our portfolio for a price that’s a little bit more, shall we say, free-ish?

There are actually two different ads that I’ve been asked about in the past day or so, teasing different stocks for this idea of a 2022 “Market Pivot” to value, so let’s see if we’ve got enough clues to ID a couple stocks from that “top 12 value stocks for 2022” list for you.

The first one is that “Unknown 50X potential” stock, here’s how Eric Bleeker’s teaser letter hints at that one…

“I want to talk to you for a moment about a travel stock with a time-sensitive window before it can really start tapping that growth potential.

“And really at its core, this is what ‘Market Pivot 2022’ is all about – finding new opportunities before the rest of the market wakes up to them….

“I had never heard of this company before… it is well under a $1 billion market cap (to put that in context, it’s less than 1/100th the size of Booking Holdings)….

“Nearly tripled gross profit in less than a year. Which is quite a feat, and a signal of a management team firing on all cylinders….

“… this company brought in $252 million in sales over the past year… its total addressable market was measured at $21.7 billion in 2020.”

OK, so they’re calling it a “value” stock, it’s got something to do with a rebound in travel, and we get a few hints about specifics — including revenue and market cap. What does the Thinkolator say? This one’s pretty easy, the Fool is hinting at Despegar.com (DESP), which is the leading online travel agency (OTA) in much of Latin America — essentially, the equivalent of Booking.com or CTrip, but focused on customers in Brazil, Argentina, Mexico, Colombia and elsewhere in Latin America. And yes, if you round up they did indeed have $252 million in revenue over the past four quarters, as of September, and it’s a tiny stock, with a market cap around $650 million.

And yes, they “almost tripled gross profit in less than a year,” though that probably says more about the collapse during the worst of the pandemic, and the quick bounce-back, than it does about the typical growth for this company. Gross profit came in at $120 million for the year ending September 30, and that’s “almost triple” the gross profit they reported for all of 2020 ($46 million). It’s still way below the pre-COVID performance, as you might guess for a company that essentially sells airline tickets and hotel bookings, annual gross profit was running in the $350-400 million range from 2016-2019.

Despegar.com got some attention in early 2021 as a bounceback, post-COVID play, but the ongoing challenges of outbreaks and travel disruption seem to have kept a bit of a lid on things so far. The company was profitable for their first year as a public company (the IPO was in late 2017), but for some reason that didn’t stick, and they were losing money pre-COVID… there are a few analysts who cover the stock, they’re predicting that DESP will roughly break even this year, and that 2023 will be the year they re-emerge into profitability. If so, and if they can generate the 20%+ revenue growth that those analysts are expecting, then the current price in the $9 range might well turn out to be a great value — they have a lot less scale than Booking Holdings (BKNG), of course, but they’re also a lot cheaper, at about 1X forecasted 2023 revenue (BKNG trades at about 6X that number, Expedia (EXPE) is much cheaper at about 2X). I don’t know anything else about the company, and in particular I don’t know how they’re positioned in their key markets like Mexico and Brazil, how the fourth quarter might have gone as Delta and then Omicron swept across that region, and what competition they face. The big players are in Latin America too, including Booking.com and Expedia and Airbnb, but at least pre-COVID those firms had less market share than Despegar, which had the lead with about 10% of the market.

As with Booking.com and the larger global players, I assume that a huge part of the business is building a “start here” brand and using search engine advertising to capture potential travelers, while trying to avoid paying too much for those ad placements, or losing market share to customers who use search engines but then book direct with hotels and airlines… but in Latin America, more than in the US, there’s still a relatively heavy presence of traditional travel agents, so there may be a lot of relatively easier competition to win over as more customers go digital. The challenge there might be that if the multinationals focus more on Latin America, and Despegar has to go toe-to-toe with Booking or Expedia in marketing, they may have to find a way to win without having the same buying ad-buying power as those much larger companies.

I’ll need some more context before risking money here, and none of us, of course, knows exactly how or when travel will return to the levels of 2019, or what economic conditions will look like in the next few years in Despegar’s key markets, but I did find their third quarter earnings recovery (investor presentation here) pretty impressive, and from what I’ve seen so far I like their cross-selling and brand-building strategy. Interesting little company.

And what’s the other one? Our clues are much more limited, let’s see what we can find… this second one is pitched as a “$40 Value Stock Too Cheap to Ignore.” These are the other clues:

“Growing profits faster than Amazon. That’s right, earnings per share are up more than 7.5x in less than four years….

“… not a recommendation in any Motley Fool service, and at a market cap just over $1 billion….

“This $40 stock is trading for 16 times earnings. That’s far cheaper than the S&P 500 (27 times earnings)….”

And that’s all we get. Not enough to be definitive about our answer like we can be with Despegar.com, I’m afraid, but the Thinkolator does have at least a solid match for us: This may be Donnelley Financial Solutions (DFIN).

How do we match, you ask? Well, the price is right around $40 ($38 as I’m typing), the market cap is a hair over $1 billion, and if you take the four year period from September 2017 to September 21 the quarterly earnings did come in with almost exactly 7.5X growth. That’s really cherry-picking, though, it’s not at all the longer-term trend — earnings growth has perked up coming out of the pandemic, but EPS had been drifting lower for several years before that… and earnings per share today are only about 14% higher than they were five years ago. And there’s very little analyst coverage of Donnelley, but those analysts expect both revenue and earnings to drift lower in 2022 and 2023 — which might still make it a value stock, the shares trade at only about 8X forward earnings, and perhaps the pessimism is overdone, but if you just go by those numbers, it is certainly not exciting in any obvious way.

What’s the business? This is how they describe themselves, and I can’t say I’m any wiser after reading this paragraph:

“DFIN is a leading global risk and compliance solutions company. We provide domain expertise, software and data analytics for every stage of our clients’ business and investment lifecycles. Markets fluctuate, regulations evolve, technology advances, and through it all, DFIN delivers confidence with the right solutions in moments that matter.”

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This gets a little better, from their latest investor presentation:

“DFIN’s portfolio of software solutions and staff of regulatory experts assist corporations and money managers with the creation, formatting, filing, and distribution of required SEC compliance documents.

“DFIN’s clients utilize its solutions for ongoing compliance needs and for capital markets transactional activities such as IPOs, debt issuances, and M&A.”

That’s a little better, they offer software and services to investment managers and publicly traded companies, to help them file SEC submissions and stay in compliance. So, I guess the reason analysts are expecting earnings to drift down a bit might stem from the fact that we’ve been through a historic boom in IPOs and mergers & acquisitions, and maybe that business will cool off. By far their biggest business, and their highest-margin business, comes from transactional and compliance filings with the SEC, including proxy mailings and communications to the SEC and to individual investors. I guess their competition is coming from two fronts, the large shareholder communications and compliance business at longtime industry leader Broadridge Financial (BR), which I own in a small way and is a fairy steady company and trades at close to a market multiple (about 25X earnings), and the flashier cloud-based Workiva (WK), which has a similar amount of revenue right now but is dramatically larger, with a market cap of about $6 billion, mostly because it has much better growth and trades at a lofty cloud SaaS multiple of 15X sales.

Donnelley looks really cheap compared to both of those, but it has also failed to have the kind of growth that has interested shareholders in those much larger companies. If you can look into their reports and their history and see reasons for the recent strength to continue, or for a turnaround to really be taking shape, perhaps it will work out great from here — and if investors go looking for companies that are objectively cheap on a PE or price/sales basis, Donnelley certainly stands out as appearing pretty cheap in its little corner of the market. Sometimes companies are cheap for good reasons, with a business that’s in persistent decline and can’t be rejuvenated, and sometimes they’re cheap just because nobody’s paying attention, and they’re not as sexy as their competitors.

And with that, dear friends, I’ll leave you to do your cogitationizing… do these smallish “value” plays have a place in your portfolio? See any big red flags, or reasons for optimism? Have a better match than the Thinkolator could come up with for that second one? Let us know with a comment below. And, as always, thanks for reading!