In this article, we will look at the 10 Most Undervalued Stocks to Buy for Under $10.
Market Outlook: Will October Bring a Pullback or a Rally?
In an interview on CNBC on October 8, Jose Rasco, CIO at HSBC Global Private Banking & Wealth Management discussed the current state of the stock market and the potential for a pullback. Rasco suggests that when the Fed starts to cut rates, fixed income tends to do well, particularly high-yield and investment-grade bonds. He recommends extending the duration and looking for quality credits. He also notes that historically, when the Fed eases, the US market tends to do well, especially during mid-cycle slowdowns. As a result, Rasco is looking for credit opportunities in Asia, particularly in India.
Rasco also mentioned that health care is a sector that tends to do well when the Fed eases. He notes that historically, health care has done very well in such environments, and it’s worth keeping an eye on. He also mentions that the growth-to-value ratio is currently at 2:1, which could lead to a mean reversion, making value stocks more attractive.
Paul Hickey, co-founder at Bespoke Investment suggests that a 1% decline in the market, which has already risen over 20% this year, is not necessarily something to get excited about. However, he does acknowledge that increased volatility is a concern, particularly with the geopolitical situation being the hottest it’s been in years, an upcoming election in November, and the impact of a hurricane in the southern United States. Hickey believes that the election and the hurricane are short-term events, but the geopolitical situation is a worry that could have a more significant impact on the market.
Despite these concerns, Hickey’s team has identified plenty of positives about the market, they believe that if a 5% pullback in the market were to occur, it would be a buying opportunity. In fact, Hickey notes that 5% pullbacks are more common in October than in any other month. Historically, when the market has been up 20% through the first three quarters of the year, October has been negative 7 out of 10 times, but the fourth quarter tends to be positive.
Hickey notes that the yield curve is flattening out, with the two-year yield flirting at 4% and the ten-year yield at 4%. This has implications for fixed-income investments, particularly with financials kicking off earnings later in the week. Hickey expects the yield curve to continue to flatten, which could impact the stock market.
Hickey notes that analysts have been lowering their earnings forecasts, which could set the bar low for companies to surpass. He expects the S&P 500 to see gains during the reporting period, particularly in sectors where the revision spreads are negative, such as technology, energy, and industrials.
While there are concerns about volatility and the geopolitical situation, there are also reasons to be optimistic about the market’s prospects, particularly with the Fed’s easing cycle and the potential for earnings growth. With that in context, let’s take a look at the 10 most undervalued stocks to buy for under $10.
Our Methodology
To compile our list of the 10 most undervalued stocks to buy for under $10, we used the Finviz and Yahoo stock screeners to find the 40 largest companies with stock prices under $10. From that list, we screened for companies that are trading at a forward P/E ratio of under 15 as of October 8. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Most Undervalued Stocks to Buy for Under $10
10. Ambev (NYSE:ABEV)
Number of Hedge Fund Investors: 18
Forward P/E Ratio as of October 8: 13.84
Stock Price as of October 8: $2.375
Ambev (NYSE:ABEV) is a Brazilian brewing company that operates across Latin America. It is a subsidiary of Anheuser-Busch InBev and produces popular brands such as Brahma, Skol, and Antarctica. Ambev (NYSE:ABEV) dominates the beer market in Brazil and has a strong position in soft drinks and other beverages through its partnership with Pepsi.
Ambev’s (NYSE:ABEV) extensive distribution network and diverse product portfolio have contributed to its resilience in both local and international markets. The company’s strategy of focusing on the premium segment has paid off, with good growth trends and improved margins in Brazil and the Caribbean markets. In Q2, the company’s revenue increased by 6.1% year-over-year, driven by strong growth in Brazil and the Caribbean markets. The Brazil beer segment saw a 7% year-over-year increase in revenue, driven by stronger volumes and pricing. The Caribbean markets also performed well, with a 3% year-over-year increase in volumes.
The company’s costs and margins have also shown good trends, with EBITDA increasing to $1 billion. The company’s profitability has been driven by its successful execution of its strategy, which has included growing core products and investing in premium and core plus products in beer and non-alcoholic segments.
Ambev’s (NYSE:ABEV) valuation is compelling, with a PE ratio of 13.84, which represents a 21.66% discount to its sector to the sector median of 17.66. Industry analysts have a consensus on the stock’s Buy rating, with an average target price of $3.10 that suggests a 26.48% upside potential from its current levels.
9. Valley National Bancorp (NASDAQ:VLY)
Number of Hedge Fund Investors: 19
Forward P/E Ratio as of October 8: 12.83
Stock Price as of October 8: $8.78
Valley National Bancorp (NASDAQ:VLY) is a regional bank based in New Jersey that provides banking and financial services in the Northeast and Florida. The bank offers a range of personal and business banking services, including loans, mortgages, and investment products. Valley National Bancorp (NASDAQ:VLY) has expanded its geographic reach through acquisitions, which has increased its market presence.
Valley National Bancorp (NASDAQ:VLY) is known for its conservative lending approach, focusing on minimizing risk while maintaining steady growth. The bank’s solid asset quality has earned it a reputation for stability. In Q2, the bank’s loan portfolio grew by $400 million, driven by business lending. This growth is consistent with the bank’s efforts to expand its loan portfolio at a moderate pace while reducing its exposure to commercial real estate (CRE).
The bank’s credit performance has been fairly typical, with modest deterioration and a low nonaccrual rate. The bank’s provision for credit losses increased in Q2, but this is expected to slow in the second half of the year. The bank’s deposit recorded a 2% sequential increase in deposits and net interest margin (NIM) expanded by 5bps. The bank’s capital position is also strong, with a common equity tier 1 (CET1) ratio of 9%.
