We recently compiled a list of the 10 Best Undervalued Stocks To Buy Now. In this article, we are going to take a look at where Aptiv PLC (NYSE:APTV) stands against the other undervalued stocks.
Demographic Shifts and AI Innovation: A Bullish Case For the US Market
In the prior couple of years, experts and analysts were worried about a recession in the US and their best-case scenario was a soft landing. Experts are still predicting the latter. However, 2024 has proven to be quite a healthy year for the US stock market as it recently hit new highs on the back of technology stocks. Moreover, we also saw notable market broadening in the latest earnings season. However, Co-Founder and Head of Research at Fundstrat Global Advisors, Tom Lee is not just bullish on the current year but also sees the US stock market almost tripling by the end of the decade.
On June 26, Lee told CNBC that he believes the S&P 500 could reach 15,000, driven by a combination of demographic trends and technological advancements. He compared today’s market to past periods of rapid growth, such as the 1920s and the 1950s-1960s. He credits the potential surge to an increase in the population of prime-age adults (30 to 50 years old), which is now led by Millennials and Gen Z. As these generations enter their peak earning years, their borrowing and spending are set to increase, and they are going to take major life decisions which are expected to drive economic growth.
In addition to these demographic factors, Lee highlights the transformative impact of artificial intelligence (AI) on the economy. He believes that AI presents a significant opportunity for US technology companies, especially as it addresses a global labor shortage by converting labor costs into technological solutions, which would probably boost the US tech sector revenues. Furthermore, the US, with its leading technology sector, is well-positioned to attract substantial global investment, especially as we see that other regions like China and Germany face demographic and economic challenges.
Despite Tom Lee’s optimism, he acknowledged several risks to his bullish outlook. He said that a global recession could undermine growth, and the development of AI could also backfire or cause geopolitical instability. Additionally, there is the potential for the stock market to peak prematurely, forming a bubble.
Despite the risks, Tom Lee predicts an optimistic outlook for the US market in the current decade. Based on his insights, this could be an ideal time to invest in the market for the longer term. Keeping in mind that Lee predicts good things for the future of AI, you can take a look at the 10 Best Artificial Intelligence Stocks to Buy Under $10.
Our Methodology
For this article, we identified over 40 stocks that were considered undervalued by other financial media websites. From that list, we narrowed our choices to 10 stocks whose forward PE ratio was either equal to or below 15 or was below their industry average, as of June 24. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
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).
A closeup of a hand holding a car engine component, highlighting the precision of the company’s engineering.
Aptiv PLC (NYSE:APTV)
Forward PE as of June 24: 12
Number of Hedge Fund Holders: 38
Aptiv PLC (NYSE:APTV) is an Ireland-based designer, manufacturer, and seller of vehicle components and runs through Signal and Power Solutions, and Advanced Safety and User Experience segments. The stock was held by 38 hedge funds in the first quarter and the stakes amounted to $1.24 billion. Impax Asset Management is the top shareholder of the company and has a position worth $554.419 million as of Q1.
During Aptiv PLC’s (NYSE:APTV) Q1 2024 earnings call, Kevin Clark, the company’s Chairman and CEO, mentioned that the management is focused on improving the company’s capabilities within the software stack. Moreover, they are determined to expand revenue streams within industrial markets. The company sees significant acquisition activity throughout 2024, 2025, and the subsequent years.
With a forward price-to-earnings ratio of 12x, Aptiv is one of the cheapest stocks among its peer group. This sentiment is shared by Argus. On June 10, the firm reiterated a Buy rating on the company stock with a $123 price target, which shows an over 80% upside to Aptiv’s current price on June 24. The firm said that the recent dip in the stock’s price presents a buying opportunity. It further added that even though Aptiv has lowered its long-term growth projections to 6%-8% from the previous 8%-10% due to slower adoption of electric vehicles by customers, Argus believes that the company still has substantial potential to achieve above-average earnings growth in the coming years.
Aptiv management’s commitment to returning capital to the shareholders boosts confidence in the profitability of the stock, making it one of our most undervalued stocks. Clark discussed the company’s share repurchase program as he said:
“Lastly, we continue to believe that our stock is undervalued and presents an attractive opportunity to return capital to shareholders. As such, we’re doubling our share repurchase target from $750 million to $1.5 billion during 2024. In summary, our conviction regarding the strength of our competitive position and the long-term value of our business is as high as ever, and we remain committed to delivering value to our shareholders.”
Ariel Investments stated the following regarding Aptiv PLC (NYSE:APTV) in its first quarter 2024 investor letter:
“We added Aptiv PLC (NYSE:APTV) which designs and manufactures vehicle components and provides electrical/electronic and active safety technology solutions to the global automotive and commercial vehicle markets. We believe the secular trend of electrification and digitization within the automobile industry, coupled with the expansion of Chinese original equipment manufacturers (OEMs), will accelerate demand and drive long-term growth. Additionally, we anticipate APTV will grow earnings per share over the near term through its divestiture of the autonomous driving joint venture, Motional. In our view, the name is currently trading at a significant discount relative to our estimate of intrinsic value.”
Overall APTV ranks 8th on our list of the best undervalued stocks to buy. You can visit 10 Best Undervalued Stocks To Buy Now to see the other undervalued stocks that are on hedge funds’ radar. While we acknowledge the potential of APTV as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than APTV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.