This week, the share price of the newly public SpaceX has exploded in dramatic style. After soaring high on a hype fueled rocket ride, the shares are crashing back to Earth, hard, and taking down many investors’ hard earned capital with them. Analyst Tejas Shankar offers a smarter way to invest, helping patient investors safely allocate their capital in a speculative market that may still see much more cash incineration before the current hype cycle is through.
Warren Buffett’s mentor, Benjamin Graham, called certain undervalued stocks “Cigar Butts”. They are discarded by the market, left to sit on the pavement, but still with one last good puff of value in them. However, the 3 stocks that will be discussed today aren’t about this popularly known concept. A true cigar butt is a company that is cheap in value and has no growth prospects, but these 3 companies are cheap and do have growth prospects to be optimistic about. Think about it as a good brand cigar that is out of style right now, and therefore it’s on sale. The price is low, but the product is still excellent.
Look at SpaceX as an example of how this contradicts the cigar theories mentioned above. It is a wonderful company with real advancements in its field, but with its IPO valuation at $1.77T, many question how they even got to that number. The Valuation King, NYU Professor Aswath Damodaran, stated that even if he was being very generous with the assumptions, he could only justify SpaceX a valuation of $1.3T. One analyst on Wall Street was so wary of the company that they gave SpaceX a price target of $63 after the company’s initial listing price was set at $135. Those analysts and professionals weren’t wrong, as SpaceX climbed to north of $225 dollars in a post IPO euphoria and has now tumbled $110, now trading under $115. The company’s stock price was propped up purely by speculation, not with real financials to justify anything. Paying too high for a great business is still a bad investment, whereas paying a low price for an ok business can be an excellent investment.
Just like we saw overinflated valuations and how that ended up for a company, here are 3 Stocks that are the opposite. They are priced as if they are a failing company while the books tell a completely different story.
Starting with Verizon Communications(NYSE: VZ). Owning a share of Verizon means owning a slice of one of the largest wireless networks in the United States. The company pulls in north of 140 million customers a year, and its fiber business quietly becomes one of the most prevalent stories in tech. Most investors have discarded the company, like the cigar butt, as a slow-growth telecom company trapped in debt. Though those investors have some merit, there is more to be unveiled about them.
Looking at its income statement, we can see that Verizon generated $139 billion in trailing revenue with $17.6 billion in net income for the fiscal year of 2025. The media rarely highlights what follows the rest. Verizon’s income statement is weighed down by a ton of non-cash depreciation on its 5G network infrastructure, making its earnings look worse than the actual cash entering the building. The cash flow, which smart investors look at, strips that depreciation and amortization and shows that Verizon generated $20.1 billion in free cash flow with a price-to-free cash flow of roughly 9x. This is a discount to the telecommunications industry’s price-to-free cash flow ratio average of 11.21. In plain English, this indicates that the company is trading at a discount relative to its peers. On the plus side, the company also pays approximately $11.5 billion in annual dividends to its shareholders, which is a coverage ratio of nearly 1.75x. This is sustainable as an investor, and the 6.7% yield makes Verizon all the more attractive as an investment.
The concern that investors may want to overdramatize is the $172.5B in total debt. This is normal for a company that builds nationwide 5G networks. The fact of the matter is that the company’s Free Cash Flow(FCF) can comfortably service the debt. With roughly $1.5B to spare, it’s definitely cutting it close but manageable. Additionally, with the recent acquisition of Frontier Communications, the company adds 25 states with fiber infrastructure and is a sign that the company has confidence in growing with Frontier.
So the future is bright for Verizon, but definitely shouldn’t be trusted blindly. At an 8.5x forward earnings, a heavy discount to the 21x the S&P 500 trades at, and a 6.7% dividend yield which can be almost covered by their FCF twice, Verizon may be a straightforward income generation asset to add to your portfolio. The risk stands that SpaceX’s Starlink could be a heavy competitor in their space, but at this valuation and dividend yield, Verizon could be a sneaky good addition to your portfolio.
Next up, we have Bristol-Myers Squibb(NYSE: BMY). The Pharma giant has paid dividends every single year since 1932, which is 94 years and counting. This was through World Wars, financial crises, and global pandemics. The common knock on the company is the patent cliff it faces. Many of their drugs are losing exclusivity over the next 3 to 5 years, and this could be detrimental for the company, and investors already have had a jump on it by pricing it in. But have they priced it too much?
Here is what a deep dive into the books says. In FY24, the company reported a Generally Accepted Accounting Principles(GAAP) net loss of $8.9B. The media took that headline and ran with it, but if you look at the whole filing, you can see that the company incurred a $12.9B loss, which was a non-cash expenditure. It was “Acquired In-Process Research and Development”. This massive charge comes when a company acquires drug pipelines. No cash left the door, and this was evidently seen the following year in 2025, when the company did a full 180 and earned $12.5B in net income. If you move away from the income statement and into the cash flow statement, we can see a story that the headlines don’t show: $13.9 billion in FCF for the fiscal year of 2024. The lemonade stand lost money on paper because of GAAP, but the lemonade stand truly still received $13.9B in real cash.
The yearly payout of dividends to investors is roughly $5.1B a year against the $13.9B FCF. A 37% FCF payout ratio is extremely sustainable, and it is understandable how the company has engineered its business to pay back shareholders for almost a century. The BMY portfolio includes two buckets. One is a legacy portfolio of drugs losing patent protection, which has been down over 12% annually. On the flip side is their Growth portfolio, which includes drugs such as Eliquis, Camzyos, and Opdivo, just to name a few. Wall Street believes that the growth portfolio is large and fast enough to bridge the decay of the legacy portfolio in the next couple of years. So though the company has its setbacks, the ~9x Forward PE Ratio is a significant discount to the roughly 24x forward PE that the pharmaceutical industry trades at. The 4.2% dividend yield, which is as sustainable as it gets, is also a great bonus for investors to look at, which makes BMY a great add to a portfolio.
Finally, we have Stanley Black & Decker(NYSE: SWK). They are the world’s largest tool company and also have their hands in supplying Boeing and the majority of the automotive industry as a significant portion of their strategy. They have raised dividends for nearly 70 consecutive years. Between the beginning of the COVID pandemic and 2022, the company overspent on acquisitions, which piled on to inflation, ruining margins, explaining the stock’s price crashing from above $200 to under $60 at one point. FCF fell to nearly zero, and the payout ratio exploded past 100%, which made the company look like nothing more than broken glass, but now it is possible for a turnaround.
Starting with the income statement, we can see the gross margin come in at 30.3% in 2025, up 90 basis points from 2024. Q4 of 2025 alone delivered 33.2% margins, up 240 basis points year over year(YoY). For a company doing $15B in revenue, a 250 basis point increase is equivalent to north of $350 million in annual profit. What may seem like small bumps in percent increases are millions or billions of dollars for such a large company like SWK.
The Cash flow statement confirms that a comeback is inevitable. The company pulled in $688 million in FCF for FY25, recovering from nearly $0 in 2023. Against roughly $500 million in annual dividend payments, a FCF payout ratio of 73% is risky but technically covered. The bigger balance sheet change came in 2026 as SWK sold its consolidated Aerospace Manufacturing business for $1.8B, with $1.57B in net proceeds going directly to reducing its debt. Management has guided EPS to hover around $5 for 2026, implying an estimated 13% growth from the previous year. As the debt restructuring matures, Wall Street projects EPS growth to go through the roof at 106%. This would not only bring the GAAP payout ratio into sustainable territory. At 14.4x Forward PE, it is again a discount to the market at 21x. The risk to note, as hinted so far, is the debt of $6B against $688M in FCF. So of the 3 companies mentioned, I would be wariest of Stanley Black and Decker. The recovery is real and visible in the books. The 69-year consecutive dividend increase is promising and is one of the company’s few bright spots. Unless you plan to hide SWK deep in your portfolio as a pure dividend -generating machine, it would be advised to hold off on buying, as the upside is very limited according to Wall Street estimates.
To sum this all up, the three companies have a common trend of the market mispricing the companies with a pessimistic future, which may be overstated. Verizon is priced as if SpaceX already took their entire market. Bristol Myers is priced as though their growth portfolio has no way of recovering the losses of their patent cliff in their legacy portfolio. Stanley Black & Decker was priced as if it wasn’t the world’s largest tool company but rather about to file for bankruptcy. As previously mentioned, of these 3, Stanley Black & Decker has the most to be wary about, as the debt is alarming, but if the price falls a decent amount, it may be an opportunity to buy cheap that can’t be avoided. All of these companies pay good dividends that any smart investor should aim to pocket from at least one of these companies.