Stocks to buy

According to JPMorgan, “Value investing is about picking stocks based on their potential long-term value,” and “Value investors are looking to buy stocks that are overlooked by other investors.” With concerns about the economy being way overdone at this point and fears on the Street, in general, running relatively high, there are many value stocks to buy that market is vastly underestimating “potential long-term value.” Similarly, the “potential long-term value” of many equities is not nearly adequately reflected by their share prices.

JPMorgan also pointed out that value investors typically use “fundamental analysis.” And, of course, value investors look for significantly undervalued stocks.

With all that in mind, here are seven value stocks with solid fundamentals and valuations that, amid the market’s current, overdone fears, do not come close to reflecting their long-term potential.

Value Stocks: Western Alliance Bancorporation (WAL)

Source: viewimage / Shutterstock.com

Western Alliance Bancorporation (NYSE:WAL) is a regional bank that’s based in Arizona. WAL stock has tumbled over the last week amid fears triggered by the failures of a few other U.S. regional banks. Even after rebounding in the latter part of last week, the shares are still down over 50% from their Feb. 2 high of $80.60.

But unlike the American regional banks that went under, WAL has very little of its funds in fixed-income assets, it has invested a meaningful portion of its assets in highly rated securities, and the mean duration of its assets is a relatively short 5.5 years.

Also noteworthy is that the bank’s “unrealized losses” are quite low, while there’s no evidence that it is a major player in the highly volatile crypto place.

What’s more, Western Alliance should be boosted by the tremendous number of companies opening up factories in Arizona. Even if WAL doesn’t make lucrative loans to these companies directly, it should be able to provide highly profitable loans to its suppliers and provide mortgages to its employees.

Finally, UBS views WAL as the best regional bank stock and placed an $85 price target on the name, while Citadel, a highly successful hedge fund owned by the highly admired veteran investor Ken Griffin, recently “disclosed a passive stake of about 5.4%” in WAL, Seeking Alpha reported.

The forward price-earnings ratio of WAL stock is a tiny and very attractive seven (at the time of writing).

All of these characteristics make WAL one of the best value stocks to buy.

General Motors (GM)

Source: Jonathan Weiss / Shutterstock.com

GM (NYSE:GM) is continuing to execute well and deliver strong results. After the automaker reported that its fourth-quarter revenue had soared 28% year-over-year and predicted that its 2023 “Net automotive cash provided by operating activities” would come in at a very impressive $16 billion to $20 billion, Bloomberg quoted its CEO recently as saying that the automaker’s Q1 sales were exceeding its expectations. Moreover, the company’s selling prices are not falling, the CEO, Mary Barra, reported.

On Feb. 2, Citi increased its price target on GM to $82 from $81, saying that the stock’s risk/reward ratio was much better than in recent history. Expressing pleasure with the company’s Q4 results, the firm kept a “buy “rating on the shares and named GM stock as one of its top picks.

Meanwhile, the automaker is employing a strategy of selling multiple, affordable EVs under $30,000. As more consumers become aware of the strength of GM’s EVs through buying these affordable vehicles, they’re likely to purchase the automaker’s more expensive, profitable EVs.

GM’s EV deliveries jumped 57% last year to over 39,000. It’s introducing four new EVs in 2023, including electric versions of the Silverado, the Equinox, and the Blazer, and it is taking steps to ramp up its EV production in general.

GM’s forward price-earnings ratio is a tiny, extremely attractive 6.6x.

IBM (IBM)

Source: JHVEPhoto / Shutterstock.com

Many investors may not realize that IBM (NYSE:IBM) is a solid play on two very powerful tech trends — AI and the cloud –, but the company is indeed becoming a leading player in both sectors.

On the artificial intelligence front, IBM is using AI to “help [companies] more effectively monetize and optimize investments in their [5G] networks.”

For businesses, IBM’s hybrid cloud approach makes sense because depending on one cloud provider can lead to “significant periods of downtime” that, in turn, result in a great deal of lost revenue. So it’s not surprising that IBM recently reported that companies’ utilization of “hybrid multicloud environments” is rapidly increasing.

Also noteworthy is that, under CEO Arvind Krishna, who began the job in 2021, IBM has greatly emphasized partnering with other major firms. For example, the company has launched collaborations with Nokia (NYSE:NOK) and Juniper (NYSE:JNPR), two major players in the telecom technology space.

In the hybrid cloud sector alone, under Krishna, IBM has launched “four to five different partnerships that” generate over $1 billion of sales annually, CFO James Kavanaugh reported recently.

IBM’s strategies appear to be working as analysts, on average, expect the company’s earnings per share to climb to $9.48 this year and $10.10 in 2024.

The shares trade at a very low forward price-earnings ratio of 13.5x.

Lennar (LEN)

Source: madamF / Shutterstock.com

A few macro trends are working in Lennar’s (NYSE:LEN) favor. Specifically, the homebuilder should benefit from America’s housing shortage, interest rates that have fallen sharply in recent days amid a few bank failures, and the continued, strong American labor market.

Encouragingly, on the company’s recent fourth-quarter earnings call, Executive Chairman Stuart Miller said, “the housing supply shortage… continues to drive customers to stretch their wallet {and} the housing market is beginning to find a point of stabilization and customers, both primary and institutional are coming to grips with the new normal of higher but acceptable interest rates.”

Meanwhile, the 30-year, fixed-rate mortgage rate dropped to 6.6% during the week of March 13 versus 6.73% during the previous week.

And very impressively, Lennar’s home deliveries actually increased 9% year-over-year last quarter, while its earnings per share rose to $2.06 from $1.69.

The forward price-earnings ratio of LEN stock is a very low 10.5x.

Adobe (ADBE)

Source: Tattoboo / Shutterstock

Adobe (NASDAQ:ADBE), which develops software that helps companies create digital content, recently reported strong fourth-quarter results, as its top line climbed 9.2% year-over-year to $4.66 billion, and its earnings per share increased to $2.71 from $2.66.

Moreover, the company actually increased its 2023 EPS guidance range to $15.30 to $15.60 from $15.15 to $15.45.

Adobe reported benefiting from the strong adoption of its Substance 3D software, which equips its users with a “virtual studio.” Amazon (NASDAQ:AMZN) and Louis Vuitton are among its corporate users. ADBE is also benefiting from the increased use of digital technology to disseminate and sign legal documents, as the revenue of its Documents Cloud business climbed 16% year-over-year to a record $634 million.

Finally, Adobe recruited several very impressive new corporate clients last quarter, including Disney (NYSE:DIS), IBM, and Nintendo (OTCMKTS:NTDOY).

Trading at a very reasonable price-earnings ratio of 22.4x, ADBE stock is very attractive at its current levels.

Bank of America (BAC)

Source: Tero Vesalainen/Shutterstock

Amid the failure of a few narrowly focused banks, Bank of America (NYSE:BAC) stock tumbled 18% in the month that ended on March 16.

Many pundits are saying or suggesting that the banks’ failures and the troubles faced by Credit Suisse (NYSE:CS) were caused by the Fed’s interest rate hikes. But I believe that they were caused primarily by stupid decisions made by those banks.

As I wrote on Stocktwits on March 17, “Signature, Silvergate, and SVB either made very stupid bond purchases or got caught up in the crypto bubble or both. $CS got caught doing [allegedly] illegal activities. Blaming their failures/problems on the macro economy is like saying that a slightly bumpy road caused a driver to get into a bad accident while he was texting. ” Obviously, it was the driver’s stupid decision to text while driving, not the slightly bumpy road, that caused the accident.

Actually, the American economy is strong, as the Atlanta Fed estimates that U.S. GDP will grow at a huge, inflation-adjusted, annualized 3%, while the labor market remains very strong. Meanwhile, interest rates remain high, but the Fed will stop raising rates before they get high enough to stop economic growth.

In this environment, Bank of America and other large, well-run U.S. banks can make a great deal of money by providing loans at high rates to thriving businesses. Moreover, with many smaller banks pulling back on their loans and the deposits of BAC and its peers jumping amid fears about smaller banks, the large banks, including BAC, should be able to generate very strong, profitable loan growth going forward.

BAC stock has a very low forward price-earnings ratio of 8.6x.

MGM (MGM)

Source: Michael Neil Thomas / Shutterstock.com

I’ve long been very bullish on MGM (NYSE:MGM), which gives investors tremendous exposure to the thriving city of Las Vegas and the rapidly growing phenomenon of internet sports betting.

My optimism about MGM has proved to be justified, as the stock has climbed 24% in 2023 and about 50% since its June low.

On Feb. 24, British bank Barclays also became upbeat about MGM stock, starting coverage of the name with a “buy” rating and a hefty $59 price target.

“MGM has attractive premium positioning in both Las Vegas and U.S. regionals, with any near to medium “cooling off” risk more than offset by upside from Macau’s ongoing recovery, though Las Vegas shows no signs of slowing,” the bank wrote.

Macau is China’s gambling hub, where MGM has a significant, although not very large, presence. In February, Macau’s gross gaming revenue jumped 33% year-over-year and 40% from 2019 levels.

Finally, Bank of America recently named MGM as a stock that thrives during an era of high interest rates.

MGM has a very attractive trailing price-sales ratio of 1.4x.

As of the date of publication, Larry Ramer owned shares of WAL and MGM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.

Articles You May Like

Faraday Future (FFIE) Stock: To the Moon or Straight to Zero?