Although acquiring nominally cheap securities doesn’t necessarily mean anything, targeting undervalued stocks is another ballgame. By undervalued, we’re talking about enterprises that should be priced higher thanks to various factors. Typically, such discounted entities are trading below what their earnings and sales performance would dictate.
To be sure, there is a field of thought that there is no such thing as overvalued or undervalued: the market absorbs all publicly available data. However, on the other hand, a counterargument exists that investors can’t possibly know all things all the time. Even with the advent of the internet and the blistering information age, there are so many securities and so little time to cover them all.
Stated differently, it may be inevitable that more than a few ideas slip through the cracks. Some of these discounted entities happen to be large, established businesses. With that, below are undervalued stocks that investors should keep on their radar.
General Motors (GM)
One of the top automotive giants, General Motors (NYSE:GM) needs no introduction. However, the company finds itself in somewhat of an awkward situation. Yes, GM stock has been solid this year. But it’s also true that it faces competitive challenges amid the broader transition to electric vehicles. Further, some concerns exist that GM may not be as nimble as smaller, pure-play EV enterprises.
Still, even with the criticism, GM might be an excellent candidate for undervalued stocks to buy. Right now, shares trade hands at 4.63X forward earnings and 0.31X trailing-year sales. In contrast, over the past year, these metrics stood at 4.85X and 0.32X, respectively. But it’s not just about the arithmetic exercise that I’m focusing on.
Rather, analysts anticipate solid expansion of the core business. In fiscal 2024, they’re targeting earnings per share to rise to $10.08. If so, that would be a lift of 31.25% from the prior year’s print of $7.68. On the top line, sales could march toward $179.29 billion, up 4.3%. Therefore, the legacy automaker may still have some tricks up its sleeve.
Kraft Heinz (KHC)
A global food and beverage company, Kraft Heinz (NASDAQ:KHC) makes an excellent idea for undervalued stocks to buy. The reason? Everybody buys its products. Okay, I’m exaggerating but seriously, the company owns several iconic brands, such as Oscar Mayer, Planters and of course its namesake identity. Further, as consumer dollars shift away from restaurants to the grocery aisle, KHC stock may benefit.
So, picking up a discount in a reliable and predictable enterprise seems like a no-brainer. Right now, KHC stock trades at 11.1X forward earnings and 1.57X trailing-year revenue. In contrast, over the prior year, these stats stood at 12X and 1.63X. Thus, it’s possible for Kraft Heinz to grow into its prior valuation.
Also, market experts believe that’s exactly what might happen. For fiscal 2024, they’re targeting EPS of $3.01. If so, that would imply a growth rate of almost 9% from last year’s haul of $2.77. On the top line, sales may rise to $26.51 billion, up 7.2%.
Sysco (SYY)
A massive player in the global food distribution business, Sysco (NYSE:SYY) serves various sectors, including restaurants, healthcare clinics and education facilities. It also serves the food distribution needs of the lodging industry. As social and economic activities return to normal from the Covid-19 pandemic, demand for Sysco’s services may rise. If so, you may want to consider taking advantage right now since it’s arguably one of the undervalued stocks.
Presently, SYY stock trades at 16.45X forward earnings and 0.49X sales. In the past year, the stats landed at 16.36X and 0.49X, respectively. While not necessarily discounted relative to the metrics seen in the past 365 days, what matters here are the forward projections.
By the end of the current fiscal year, analysts believe that Sysco’s EPS may rise to $4.61. That would imply a growth rate of just under 7%. On the top line, sales may hit $82.14 billion, up 4.2% from the prior year’s print of $78.84 billion. Given the forecasted business expansion, SYY makes for an intriguing idea among undervalued stocks.
Dell (DELL)
On paper and without recent context, Dell (NYSE:DELL) might not seem like a candidate for undervalued stocks. Indeed, some might say that it’s one of the overvalued equities. So far this year, DELL – which is a global technology firm that provides a range of products and services – has benefited from the artificial intelligence boom.
However, some concerns about AI are starting to creep up. As a result, DELL stock hasn’t looked that promising in recent sessions. In the past month, shares dipped 20%. Nevertheless, the chart discount appears to have made DELL one of the undervalued stocks.
Currently, shares trade hands at 0.89X. In contrast, the sector median value for the underlying industry comes in around 1.49X. Enticingly, covering experts project that revenue by the end of this year may reach $96.41 billion. If so, that would be up 9% from the prior year’s tally of $88.42 billion.
The following year could see sales at $103.58 billion, implying growth of 7.4%. It’s a name to keep on your radar.
Dollar General (DG)
An operator of discount dollar stores, Dollar General (NYSE:DG) in theory should be thriving right now. Instead, DG stock has been struggling, dropping more than 14% of equity value since the beginning of January. You know it’s a tough situation when even dollar stores are struggling. Nevertheless, as consumers work through inflation and high borrowing costs, DG should see increased demand.
If anything, Dollar General appears to be one of the undervalued stocks to consider. Presently, shares trade hands at 16.72X forward earnings and 0.67X trailing-year revenue. Over the past year, these stats stood at 16.86X and 0.8X, respectively. As mentioned earlier, it’s possible that DG may rise to its prior valuation.
Analysts recognize that the retail environment is tricky. By year’s end, EPS might dip almost 5% to $7.19. However, a recovery could take place in 2025, with earnings rising to $8.18 per share. On the other hand, revenue by this year could hit $41.05 billion, up 6.1%. In the following, it may improve to $43.34 billion. Therefore, it’s time to rethink Dollar General.
PDD Holdings (PDD)
Another idea that doesn’t natively sound like one of the undervalued stocks, PDD Holdings (NASDAQ:PDD) operates an e-commerce platform in China. Also referred to as Pinduoduo, PDD provides a range of products, including produce, electronics and apparel. It could potentially soar over the long run thanks to the rapid digitalization of China’s economy. However, it’s not without distractions.
For one thing, China’s consumer economy faces serious questions about its viability. Second, PDD stock has been a high-flying entity since early 2022. And over the past five years, the equity has gained nearly 461% of value. Still, let’s examine the numbers. Shares trade hands at 10.64X forward earnings and 4.4X sales. In contrast, over the past year, these stats stood at 16.96X and 5.99X, respectively.
Here’s the kicker: analysts anticipate monster growth. By year’s end, EPS could skyrocket to the tune of almost 83% to $11.94. On the top line, sales may jump higher to $57.68 billion. If so, that would be a growth rate of 65.5%. In context, PDD may be one of the most compelling ideas for undervalued stocks.
LKQ (LKQ)
A leading provider of alternative and specialty parts, LKQ (NASDAQ:LKQ) is an intriguing idea. Chances are, you might not have heard about this company. Per its website, one of its specialties revolves around salvage and recycled auto parts. That might sound a bit anachronistic. Then again, if you think about the consumer pressures and how people are looking to save money, suddenly, LKQ makes sense.
And because it’s not exactly a household name, LKQ represents one of the most compelling undervalued stocks. Right now, the equity trades hands for 11.16X forward earnings and 0.75X sales. Over the past year, these stats stood at 11.69X and 0.95X, respectively.
More importantly, analysts see long-term expansion of the business. Okay, fiscal 2024 may see EPS dip by 6.5% to $3.58. However, in the following year, earnings could improve to $4.04 per share. On the top line, 2024 sales may land at $14.81 billion, up 6.6%. And next year, we’re talking about 15.23 billion.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.