Key Points
The S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) hit new highs in July, but there are plenty of solid companies in growing industries that could be bargain buys right now.
Let’s look at two stocks that are reporting solid earnings results while their valuations appear too good to pass up.
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1. Carnival
Carnival (NYSE: CCL) has enjoyed a strong recovery over the past few years. The stock is up 258% since the end of 2022, following eight consecutive quarters of record revenue. There are still catalysts ahead that can support more gains for investors buying shares at the current $30 share price.
Despite challenges in certain sectors of the economy, there appears to be no slowing in demand for cruises. Carnival raised its full-year guidance for net yields to 5%, which is a key measure of profitability for a cruise company. Bookings are pacing in line with last year’s record levels and at historically high prices, benefiting yields and earnings. As a result, analysts are expecting full-year adjusted earnings per share to land at $2, up 40% over last year.
One of the negatives for Carnival is its high debt burden. It ended the last quarter saddled with $27 billion of total debt. However, its debt-to-equity ratio peaked at 5.75 in 2023 and has come down to 2.72. Higher profits are helping the business reduce debt, which lowers Carnival’s risk profile and can lead to higher earnings from lower interest expense.
Carnival also has some things in the works to drive more demand, such as the launch of its exclusive destination in Grand Bahama, Celebration Key. Looking ahead to 2026, Carnival will launch an expansion of its RelaxAway, Half Moon Cay in the Bahamas.
Carnival is not just a post-pandemic recovery play. It is clearly positioning itself to deliver long-term growth for shareholders. On that note, Carnival is tapping into the growth of the experience economy, as more people opt to spend their money on experiences rather than material goods.
Looking ahead to fiscal 2029, analysts expect Carnival‘s earnings to reach $3.10, or grow at a compound annual rate of nearly 17% from fiscal 2024. With the stock trading around 10 times those estimates, there is still significant upside potential from current share prices.
2. Alibaba
Alibaba (NYSE: BABA) is one of China’s top tech companies, with leading market positions in e-commerce and cloud computing. The stock has started to recover after falling well off its previous highs, but it still looks undervalued.
Despite Alibaba posting a 7% year-over-year increase in revenue last quarter, and even stronger earnings growth of 23%, the stock trades at a forward earnings multiple of 12. The low valuation reflects geopolitical risks and increasing competition from rival e-commerce platforms.
However, the conservative valuation seems too low for a few reasons. While direct sales on Alibaba’s domestic e-commerce marketplaces were down 1% year over year last quarter, the segment’s total revenue grew 9%, as Alibaba raised fees it charges to sellers on its marketplaces. This fee-based model provides Alibaba leeway to keep revenue growing during tough times.
It’s also continuing to show great international expansion potential, with AliExpress growing revenue by 22% year over year last quarter. Moreover, management expects the international e-commerce business to achieve profitability in the current fiscal year.
The real strength for Alibaba right now, and why its stock could soar, is growth at Alibaba Cloud. The cloud business posted a strong 18% year-over-year revenue increase last quarter, and it could accelerate further, as demand for artificial intelligence (AI) remains strong. AI-related services have grown revenue at triple-digit rates for seven straight quarters, and it’s seeing demand across multiple industries like internet, retail, and manufacturing.
In April, Alibaba launched its new Qwen3 AI model, which offers deeper reasoning capabilities and faster responses. Alibaba stock traded higher earlier this year with the announcement that it is partnering with Apple to bring its AI to the iPhone in China.
The stock has fallen 23% since reaching a 52-week high in February, but another better-than-expected quarter, especially with respect to Alibaba Cloud and AI, could send the stock to new highs in the second half of 2025.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool recommends Alibaba Group and Carnival Corp. The Motley Fool has a disclosure policy.