2 Value Stocks to Buy With $1,000 Right Now

With high inflation continuing to chip away at the dollar's purchasing power, $1,000 isn't what it used to be. But if you invest in good companies at fair prices and hold on tight to their shares for a long period of time, that $1,000 can multiply. If that sounds good to you, consider investing in shares of International Business Machines (NYSE: IBM) and The Walt Disney Company (NYSE: DIS).

International Business Machines

The market just doesn't believe in IBM's turnaround story. While it has taken the better part of a decade for the century-old tech giant to remake itself for the era of the cloud and artificial intelligence (AI), IBM is now capable of delivering steady growth by offering services and products that help its enterprise customers digitally transform their operations.

Once it spun off its managed infrastructure services business as the new company Kyndryl in late 2021, a leaner IBM emerged. This new IBM has put hybrid cloud computing and AI at its center, and three-quarters of the company's revenue now comes from software and consulting, with half of the total recurring in nature.

Factor in the long-term relationships IBM has with many of its customers, and you get a company that should perform relatively well regardless of economic conditions. IBM's first-quarter results were a testament to this steadiness. Revenue grew by 4% on a constant-currency basis and margins expanded despite the difficult economic conditions. Management expects 3% to 5% revenue growth this year along with a meaningful improvement in free cash flow.

Despite IBM's performance, the market values the company at just $114 billion. With free cash flow expected to reach $10.5 billion this year, that works out to a pitiful price-to-free-cash-flow ratio of approximately 11. It's not hard to imagine multiple expansion alone leading to market-beating returns for IBM over the next few years.

IBM isn't immune from the prevailing macroeconomic conditions, but it's well positioned to keep growing. IBM's pitch is that it can help customers raise their efficiency, boost productivity, and save money with its hybrid cloud and AI services. In a tough economy, that pitch will likely resonate with a customer base that's putting cost-cutting front and center.

Disney

After Disney spent aggressively to grow its streaming business over the past few years, returning CEO Robert Iger has refocused the company on getting its costs back under control. Disney has done two rounds of layoffs so far, with plans to reduce its workforce by around 7,000 in total as it searches for $5.5 billion in annual cost cuts.

The media and entertainment segment, which includes Disney's linear networks as well as its streaming services, produced an operating loss in Disney's fiscal 2023 first quarter (which ended Dec. 31) as the streaming business racked up another massive loss. Disney has over 200 million subscribers across its various streaming services, but low subscription prices and high content costs have produced nothing but red ink.

Disney is working to turn streaming into a cash cow. On top of cutting costs, the company raised prices on its flagship Disney+ service earlier this year by 38%. Despite that big increase, The Wall Street Journal, citing data from analytics company Antenna, reported that 94% of subscribers stuck with the service.

Disney's expansive catalog of iconic brands and intellectual property gives it immense pricing power, and it's only begun to tap into that pricing power in the streaming business. More hikes are likely down the road as Disney brings its prices more in line with its competitors, and those price increases should flow through to the bottom line as the company keeps a lid on content spending.

Analysts expect Disney to report earnings per share of $4.11 this year, which puts the price-to-earnings ratio at about 24. That doesn't look cheap, but there's tremendous potential for Disney to expand earnings over the next few years as it cuts costs and raises prices. Its massive annual streaming losses have the potential to turn into equally massive annual profits.

Disney is going through a rough patch, and the tough economy isn't helping. But the company is making the right moves to grow profits in the long run, and investors buying today should be rewarded.

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Timothy Green has positions in International Business Machines and Walt Disney. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.