3 Undervalued Stocks Primed to Sizzle
So far, the stock market hasn't had much spunk or pizzazz in 2022, and many industries have borne the brunt of these issues. Markets have remained volatile and the war...
So far, the stock market hasn't had much spunk or pizzazz in 2022, and many industries have borne the brunt of these issues. Markets have remained volatile and the war in Ukraine has affected commodity prices, inflation and interest rates. Changes in the monetary policy could also mean more storminess ahead.
It's prime time for undervalued stocks. Let's take a look at a few and why you might want to hop aboard.
Why Choose Undervalued Stocks?
An undervalued stock currently sells at well below its intrinsic value. Let's say a stock is selling for $75 but is worth $90 based on other data. In that way, it's considered undervalued.
There's good reason to tap into undervalued stocks — who wouldn't want to pay less for more future cash flow?
You can look into a few tips and formulas to evaluate undervalued stocks:
- Debt-to-equity (D/E) ratio: The D/E ratio helps you understand how a company finances its assets from an equity-to-debt standpoint. Too much debt can be risky to investors but a high D/E ratio shows that a company investing in additional streams of income can result in positive outcomes, using the following formula: Debt to Equity Ratio = Total Liabilities / Total Shareholders' Equity
- Earnings per share (EPS): Earnings per share (EPS) indicates a company's profits, and you can figure it out by dividing a company's reported net income after tax. Next, subtract the company's preferred stock dividends by its outstanding shares of stock: EPS = Net Income - Preferred Dividends / Weighted Average Shares Outstanding.
- Price to Book Value (P/BV) ratio: The P/BV ratio refers to the market value of equity to the book value of equity using Price to Book Value = Market Value of Equity/Book Value of Equity.
- PE and PEG ratio: A high price to earnings (P/E) ratio means that investors are paying more for each unit of net income, which makes it more expensive to purchase than a stock with a lower P/E ratio. To get the PEG ratio, you take the P/E ratio of a company and divide it by the growth rate of its earnings, like this: PEG Ratio = P/E / Annual EPS Growth. A PEG ratio of 1.0 or lower suggests a stock is fairly priced or even undervalued. A PEG ratio above 1.0 has historically suggested that a stock is overvalued. However, it's important to remember that a company's growth may not continue like it has in the past, so you should also evaluate more than just PEG ratio.
Do you have to figure all this out by yourself? Absolutely not. Getting a good stock screener on your side can help you research the stocks to determine whether a stock is undervalued.
3 Undervalued Stocks to Buy
Let's look into three undervalued stocks you may want to consider adding to your portfolio.
SoFi Technologies, Inc., based in San Francisco, California, provides digital financial services through its lending, financial services and technology platform. Members can borrow, save, spend, invest as well as take advantage of student loans, personal loans for debt consolidation and home improvement projects as well as home loans. SoFi Technologies Inc. also offers cash management, investment options and other related services. It also operates Galileo, a technology platform and Apex, a technology-enabled platform that offers investment custody and clearing brokerage services.
Its Q4 results showed record annual revenue of $280 million and $1 billion in annual adjusted net revenue as well as Q4-adjusted EBITDA of $5 million and positive full-year adjusted EBITDA of $30 million.
The company ended the year with 3.5 million total SoFi members, up 87%, or 1.6 million and 500,000 ahead of SoFi's stated goal. The company added 523,000 new members in Q4, up 39% versus the number of net adds in Q3 2021. The company also had triple-digit year-over-year product growth with 906,000 new products, up 51% versus the number of net adds in Q3, to end 2021 with a record 5.2 million products total.
Dow Inc., a materials science company, combines science and technology to develop innovative solutions through three business segments: performance materials and coatings, industrial intermediates and infrastructure and packaging and specialty plastics. The company delivers a wide array of solutions into consumer and infrastructure end markets through coatings and performance monomers and consumer solutions through acrylics, cellulosics- and silicone-based technology platforms for architectural and industrial coatings, home care and personal care end markets. The company also creates intermediate chemicals for manufacturing processes as well as downstream, customized materials and formulations that use advanced development technologies.
Dow delivered top- and bottom-line growth year over year, with net sales up 34% YoY with gains in every operating segment, business and region, though its volume declined 4% YoY driven by supply and global logistic constraints.
The company had an operating EBIT of $2.3 billion, up $1.2 billion year over year due to margin expansion and higher equity earnings. The company also had a cash flow conversion of 88% in the quarter and returned $912 million to shareholders, including $512 million in dividend and $400 million in share repurchases.
Rio Tinto Plc, headquartered in London, explores, mines and processes mineral resources. It operates through iron ore, aluminum, copper and diamonds, energy and minerals, and other operations segments through a global seaborne iron ore trade, bauxite, alumina and primary aluminum, gold, silver, molybdenum and other by-products, uranium, borates, salt and titanium dioxide feedstock and coal operations.
The company showed significant price strength for its major commodities, which achieved free cash flow of $17.7 billion and underlying earnings of $21.4 billion, after taxes and government royalties of $13 billion. This led Rio Tinto to pay out its highest dividend ever of 1,040 U.S. cents per share, including a special dividend representing a 79% payout.
Its $25.3 billion net cash generated from operating activities was 60% higher than 2020 driven by higher prices, which had an 88% higher free cash flow of $17.7 billion, as well as $21.1 billion of net earnings, 116% higher than 2020.
The company had $1.6 billion of net cash at year end, compared with net debt of $0.7 billion at the start of the year.
Get Going with Undervalued Stocks
Finding the undervalued stocks in excellent companies, then holding on to them for the long term has proven to be an excellent strategy for investors. Once the rest of the market finds out that the stock is undervalued, you're already on your way to spectacular returns.
You can look into other undervalued stocks besides these three — just look at the underlying fundamentals to get a grip on the right ones.
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