In this article we will take a look at the 10 best undervalued stocks to buy now. You can skip our comprehensive analysis of these companies and go directly to the 5 Best Undervalued Stocks to Buy Now.
The stock market has witnessed a whole year of turmoil that has resulted in increased interest around value stocks which offer investors a safety cushion in an era of soaring valuations and social media speculation around growth stocks. However, there is even greater value to be had in undervalued stocks. As coronavirus restrictions ease, several industries are reopening and have significant upside potential, and their stocks are still not trading at premium prices because of the battering business took in the past twelve months due to COVID-19.
A few good indicators for highlighting undervalued stocks are low share prices, a decent price-to-earning ratio, and a high percentage of growth in the earnings-per-share value. Several sectors of the economy fit the description, including banks, mining firms, construction companies, and retail brands that stand to benefit from increased social activity as the vaccine rollout allows for the return of people to public spaces. Even among these sectors, companies which outperform peers are the best bets.
How to Spot Undervalued Stocks?
There is also a lot of debate around major growth stocks being overvalued. While some say growth titans like Tesla Inc (NASDAQ: TSLA) and Coinbase Global Inc (NASDAQ: COIN) are overvalued, famous investors like Cathie Wood and Chamath Palihapitiya vehemently believe that companies with strong products have a lot of room to run. Billionaire Chamath Palihapitiya of Social Capital believes that people who think Tesla is overvalued don’t quite understand the company’s business model. According to Palihapitiya, Tesla Inc (NASDAQ: TSLA) is no longer just a car company as it has made inroads in the utilities business and is allowing people to be “energy independent.” Similarly, famous hedge fund manager Cathie Wood, who has a $3 billion stake in Tesla Inc (NASDAQ: TSLA) , believes that the EV maker’s stock price could reach $3000.
Coinbase Global Inc (NASDAQ: COIN), which recently went public and has a market cap of $60 billion, is also raising some valuation concerns. Investor Peter Cohan recently said that Coinbase is overvalued. CNBC’s Jim Cramer recently recommended buying the stock but warned that it could be a bumpy ride for those who cannot stomach short-term volatility. Cramer said that one of his “biggest fears” about Coinbase Global Inc (NASDAQ: COIN) stems from the “growth stock glut” in the market.
“Just too many of these things, especially in tech.”
Nucor Corporation (NYSE: NUE), an American steel manufacturer, has a price-to-earning ratio of 15 and is presently trading at well below peak value since there are lingering uncertainties about production delays due to supply chain issues. However, Nucor Corporation has navigated the problems well by increasing prices and registered a 25% increase in revenue in the first quarter of 2021 compared to the same period last year. It also posted earnings-per-share of $3.1 in line with past projections earlier this month.
SLM Corporation (NYSE: SLM), a banking company in Delaware, has also outshone peers with share price rising by 14% in the past four weeks. The bank has also posted positive quarterly results, beating analyst estimates for earnings-per-share by over 50%. SLM Corporation also reported $399 million in gains from $3.1 billion in student loan sales in the first three months of 2021. However, although it was positive across most other indicators, it fell short on net interest income, which decreased 17% year-on-year to $331 million.
FirstEnergy Corp. (NYSE: FE), an electric utility headquartered in Ohio, has performed remarkably well considering it is fighting not only the pandemic but also a court case related to bribery. On April 23, the firm announced that it was in talks with the US government to reach a settlement in the matter. The price-to-earnings ratio for the firm reads an impressive 15 and the share price has been on a consistently upward trajectory over the past three months. Earlier in April, FirstEnergy Corp. posted an EPS of $0.69, beating estimates by $0.02.
Even though these undervalued stocks have gained on value and growth stocks over the past few months, they still have a long way to go before they start offering investors the sort of returns they might expect from higher-risk options. However, they also offer great long-term value, especially as new technology disrupts most other industries and fuels volatility in price that leaves even market experts scratching their heads. Even sound financial institutions, including hedge funds, have not been able to shield themselves from the chaos.
The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 best undervalued stocks to buy now. The stocks have been ranked mostly keeping in mind their price-to-earning ratio and the percentage gain in their earning per share values over the past few months.
Best Undervalued Stocks to Buy Now
10. New York Community Bancorp, Inc. (NYSE: NYCB)
Number of Hedge Fund Holders: 25
PE Ratio: 11.1
New York Community Bancorp, Inc. (NYSE: NYCB) is a Westbury-based banking firm. It was founded in 1859 and is placed tenth on our list of 10 best best undervalued stocks to buy now. The bank has a market cap of more than $5 billion and posted more than $1 billion in annual revenue in 2020. The bank has more than 200 branches spread over New York, New Jersey, Ohio, Florida, and Arizona.
On April 20, investment advisory CFRA upgraded the rating of New York Community Bancorp, Inc. (NYSE: NYCB) stock to Buy from Hold. The investment advisory said the upgrade was related to a recent announcement made by the banking firm to acquire Michigan-based Flagstar Bank as part of an effort to diversify operations.
At the end of the fourth quarter of 2020, 25 hedge funds in the database of Insider Monkey held stakes worth $244 million in the firm, down from 28 in the preceding quarter worth $218 million.
9. KeyCorp (NYSE: KEY)
Number of Hedge Fund Holders: 29
PE Ratio: 12.1
KeyCorp (NYSE: KEY) is a Cleveland-based banking company. The firm is the 25th largest bank in the US and the only major one based in Cleveland. The services it offers include deposits, investment and personal finance, as well as student loan refinancing and mortgages. The bank has more than 1,000 branches and 1,400 ATMs in several different US states. It was founded in 1849 and is ninth on our list of 10 best undervalued stocks to buy now.
KeyCorp (NYSE: KEY) announced on April 20 that its earnings-per-share of 61 cents had beaten estimates by 13 cents in the first three months of 2021, and were well ahead of the 12 cents posted in the first quarter last year.
Out of the hedge funds being tracked by Insider Monkey, Boston-based investment firm Adage Capital Management is a leading shareholder in the firm with 4.2 million shares worth more than $69 million.
8. Kinross Gold Corporation (NYSE: KGC)
Number of Hedge Fund Holders: 36
PE Ratio: 6.8
Kinross Gold Corporation (NYSE: KGC) is a Canada-based gold and silver mining firm. It was founded in 1993 and is placed eighth on our list of 10 best undervalued stocks to buy now. It has operations in the US, Russia, Chile, Brazil, and other countries. The firm has more than 79 million ounces of proven and probable gold and silver deposits under its control. The company is often called one of the top ten gold mining firms in the world.
On March 10, Bank of American gave Kinross Gold Corporation (NYSE: KGC) stock a Buy rating and called the firm undervalued in relation to peers despite a strong growth output forecast till 2023. The firm has a market cap of over $9 billion.
At the end of the fourth quarter of 2020, 36 hedge funds in the database of Insider Monkey held stakes worth $694 million in the firm, up from 29 in the preceding quarter worth $799 million.
7. Gold Fields Limited (NYSE: GFI)
Number of Hedge Fund Holders: 15
PE Ratio: 11.8
Gold Fields Limited (NYSE: GFI) is a South Africa-based gold mining firm. It has mining stakes in Chile, South Africa, Ghana, Australia, and Peru. Gold Fields has significant interests in the exploration of copper as well, which is used in many different electronic appliances. The firm operates 9 mines producing almost 2.24 million ounces of gold. It also has gold reserves of 52.1 million ounces. The company is ranked seventh on our list of 10 best undervalued stocks to buy now.
In February, Gold Fields Limited (NYSE: GFI) announced that South African authorities had granted the firm permission to build a solar power plant for mining operations in the country. The firm had previously been vocal about decreasing reliance on Eskom, a South African electric utility, whose unreliable power systems have hurt production for Fields in the past.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in the firm with 13.4 million shares worth more than $124 million.
6. eBay Inc. (NASDAQ: EBAY)
Number of Hedge Fund Holders: 53
PE Ratio: 7.9
eBay Inc. (NASDAQ: EBAY) is a San Jose-based e-commerce firm. It operates a website that facilitates deals between sellers and buyers. The firm was founded in 1995 and is placed sixth on our list of 10 best undervalued stocks to buy now. The company has a mobile application for users as well to complement the main website. Retailers, distributors, liquidators, and import and export companies, among others, use the platform to conduct business.
eBay Inc. (NASDAQ: EBAY) has a market cap of over $43 billion and posted annual revenue of around $10 billion in 2020. In July 2020, the company announced that it would sell a classified advertisements business to Norwegian firm Adventia for more than $2.5 billion to acquire a stake in the company in return. The deal is still awaiting regulatory approval.
At the end of the fourth quarter of 2020, 53 hedge funds in the database of Insider Monkey held stakes worth $4 billion in the firm, up from 50 in the preceding quarter worth $4.8 billion.
In their Q4 2020 investor letter, Steel City Capital highlighted a few stocks and eBay Inc (NASDAQ:EBAY) is one of them. Here is what Steel City Capital said:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
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Disclosure: None. 10 Best Undervalued Stocks to Buy Now is originally published on Insider Monkey.
