7 Most Undervalued Stocks to Buy Now
There are bargains to be found in the current bear market for investors who have nerves of steel and can stomach the volatility. The broad-based decline in equities through most of the year means that some of the best run and most dominant companies in the U.S. have undervalued stocks to buy. These names are trading at a huge discount relative to their current and future earnings.
The share prices of many highly profitable, market-leading companies have sunk by 50% or more over the last nine months, in many cases erasing the gains that they achieved during the pandemic of the last two years.
This presents a huge buying opportunity for investors looking to put capital to work in a weak market. And while we may not have achieved a firm bottom just yet, there are plenty of undervalued stocks to buy at fire-sale prices. These stocks should pay off handsomely once the market does bottom for good and share prices permanently reverse higher.
Here are seven of the most undervalued, attractive stocks to buy now.
Alphabet (GOOG, GOOGL)
The shares of technology giant Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are not likely to be this affordable again for a very long time. Following the Google parent company’s most recent earnings report, GOOGL stock dropped 6%, pulling its share price down to $96, its most affordable level since the company went public in 2004.
To be sure, Alphabet’s latest earnings print was ugly. Owing largely to a drop of online advertising on YouTube, Alphabet’s Q3 results missed analysts’ average expectations on both the top and bottom lines. The company announced earnings per share of $1.06 versus analysts’ average estimate of $1.25, according to Refinitiv data. Its Q3 revenue amounted to $69.09 billion, compared to the mean estimate of $70.60 billion.
YouTube’s ad revenue fell 2% year-over-year in the quarter while analysts, on average, were expecting an increase of 3%.
In response to the poor Q3 showing, Alphabet announced several cost-cutting measures, including canceling the next generation of its Pixelbook laptop computer and plans to close its digital gaming service called Stadia. The company also said it would reduce its workforce in the coming months.
The added pressure on GOOGL stock following the Q3 earnings has dragged the shares’ value down a total of 33% on the year. (A 20-for-1 stock split in July also lowered the share price). While discouraging, the decline makes Alphabet stock look very attractive at its current levels. The company’s price-earnings (P/E) ratio has dropped along with the share price to an attractive level of 19 times, which is below the large-cap technology stocks’ average of 25 times.
This year’s pullback is one of the steepest in the company’s history. Investors should take advantage of this rare opportunity.
Down nearly 30% this year, retailer The Home Depot (NYSE:HD) is now trading at $298 a share and was recently at its lowest level since before the Covid-19 pandemic struck in March 2020.
The decline of the share price hardly seems justified, considering that the Atlanta-based company just reported solid second-quarter earnings and reaffirmed its 2022 guidance. The company’s Q1 sales were the strongest in its 44-year history. For Q2, Home Depot reported earnings per share of $5.05, which beat analysts’ average forecast of $4.94 per share. Its Q2 revenue came in at $43.79 billion, beating the average outlook of $43.36 billion.
For all of 2022, the company expects its sales to increase 3% and EPS growth of around 5%.
Home Depot continues to manage inflationary pressures. The company has been focused on serving professional home builders and contractors rather than putting a great deal of its efforts towards serving do-it-yourself renovators and weekend warriors.
The company noted on its Q2 earnings call that its sales to professionals continue to exceed its revenue from do-it-yourself projects. Illustrating that trend, its revenue from building-material supplies has been growing by double-digit-percentages YOY.
The earnings and positive guidance show that Home Depot has been unfairly dragged lower by the market rout. Add in a P/E ratio on the stock of 18 and a quarterly dividend that yields 2.54%, and it’s easy to make the case that investors should buy HD stock on the dip.
Really, you could put any semiconductor stock on this list. They’ve all been knocked lower this year as investors flee high-growth technology equities in favor of stocks that are more immune to rising interest rates.
But among the semis, Advanced Micro Devices (NASDAQ:AMD) has been especially battered, down 59% on the year. In mid-October, investors could purchase the shares of AMD for $55 each, the same level at which the stock was trading two years ago. The California-based company’s P/E ratio is now at 26, lower than archrival Nvidia’s (NASDAQ:NVDA) P/E ratio of 45 and below the industry average.
While AMD doesn’t pay a dividend, the company’s earnings have continued to be stellar this year, and its outlook is strong despite its ongoing challenges caused by supply-chain issues and inflationary pressures. In August, the company reported its second-quarter results which showed that its sales had come in at $6.55 billion versus analysts’ average estimate of $6.53 billion.
Each of AMD’s individual businesses grew during the quarter, with its overall revenue rising 70% year-over-year. Looking ahead, the company guided for sales of $6.7 billion for the just-completed Q3, plus or minus $200 million. By almost every measure, AMD is a best-in-class stock that investors should buy while it is on sale.
Target (TGT)
Another retailer whose stock is looking cheap is Minneapolis-based Target (NYSE:TGT). In 2022, TGT stock has dropped 29% to trade at $163 a share.
The shares of the big-box department store chain, which has nearly 2,000 locations, more than 400,000 employees, and annual revenues in excess of $100 billion, had been holding up fairly well until April. That’s when the company reported its Q1 earnings which showed that inflation had affected its bottom line and that it had an excessive amount of inventory in its warehouses.
Inventory, in particular, has been a problem for TGT, with the retailer warning in June that its Q2 operating margin would likely fall to 2% from 5.3% in Q1 as it marked down unwanted items, canceled orders, and took steps to get rid of extra items. The retailer blamed its poor financial results on pricey freight costs, higher markdowns, and lower sales of everything from television sets to bikes.
The earnings and inventory issues aside, Target still pays a decent, $1.08 per-share dividend that yields 2.58%. And its P/E ratio of 19 shows that the stock is currently undervalued relative to its peers.
Boeing (BA)
The Boeing Company’s (NYSE:BA) stock was down for the count before this year’s bear market. Several high-profile crashes of its aircraft in the last few years had created a crisis of confidence in the Virginia-based manufacturer of passenger airplanes. However, all indications are that Boeing has turned the page and is moving forward with more stringent safety guidelines.
However, this fact hasn’t helped BA stock, which has fallen 31% this year and is trading at $143 a share. The stock is trading near the same level that it was at in 2015.
Investors willing to be patient with BA stock should consider the fact that Boeing is part of a duopoly when it comes to aircraft manufacturing. That’s because France’s Airbus SE (OTC:EADSY) is the only other reputable company in the world that manufactures a high number of commercial passenger airplanes.
This gives Boeing an enormous advantage and puts the company in a strong competitive position. While investors continue to fret about the Federal Aviation Administration (FAA) looking over the shoulders of Boeing’s executives and engineers, they miss the fact that the company continues to win lucrative contracts around the world as airlines move to replace their aircraft fleets.
Pfizer (PFE)
Pfizer (NYSE:PFE) is one of the world’s premier pharmaceutical companies, with annual revenues of more than $80 billion and nearly 80,000 employees worldwide. The company makes several blockbuster drugs ranging from Celebrex that treats arthritis; Eliquis for the treatment of deep vein thrombosis; and Prevnar for multiple types of pneumococcal bacteria.
In late 2020, the company’s Covid-19 vaccine hit the market. Pfizer sold $36.7 billion worth of Covid-19 vaccines globally last year, representing 45% of its total revenue. This year, the company forecasts Covid-19 vaccine sales of $54.5 billion, including booster shots.
Despite the successful addition of its Covid-19 vaccine and the multi-billion dollars of revenue that it has brought in, PFE stock has declined 15% this year to $47.50 a share. The company’s price–earnings ratio is a modest 9.3, suggesting the stock is relatively cheap at its current levels.
Investors who snap up the shares ahead of this year’s cold-and-flu season will also benefit from a quarterly dividend that yields 3.37%. In the lead-up to this winter, Pfizer is continuing to develop its Covid-19 treatment, called “Paxlovid.”
So far, the pill has received Emergency Use Authorization from the FDA, and trials of the drug continue. Some analysts say the pill could be Pfizer’s next blockbuster medication if it gets full approval from the FDA.
JPMorgan Chase (JPM)
An investor could do worse than to buy shares of JPMorgan Chase (NYSE:JPM), which is the biggest lender in America with nearly $4 trillion of assets under management, and the largest bank in the world with a market capitalization of $370 billion.
JPMorgan Chase was one of the first banks out of the gate with Q3 earnings, and the results did not disappoint. For the July through September period, the bank reported earnings per share of $3.12, handily beating Wall Street estimates for $2.88. Revenue in the quarter totaled $33.49 billion, beating the $32.1 billion that was expected by analysts on average and up 10% from the same period a year earlier.
JPM’s earnings, which serve as a bellwether for the banking industry, bolstered sentiment among investors, especially as the lender stressed that consumer and businesses appear to be holding up despite indications of a slowing economy. And while JPMorgan’s investment banking and equity trading units experienced a slowdown in Q3, the bank offset those declines with greater interest income generated from higher interest rates charged on its loans, and also through a bump in bond trading.
JPM stock is currently down about 20% on the year at $126.60 per share. However, the bank’s share price has gained 19% in the past month due to a post-earnings bump. The shares also currently have a low price–earnings ratio of ten and pay a quarterly dividend that yields 3.17%.
On the date of publication, Joel Baglole held long positions in GOOGL and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
