We recently compiled a list of the 7 Most Undervalued Foreign Stocks to Buy According to Analysts. In this article, we are going to take a look at where CAE Inc. (NYSE:CAE) stands against the other undervalued foreign stocks.
Chinese stocks have seen a strong rally since September-end as numerous supportive measures have reignited the investors’ confidence. The Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, saw an increase of ~28% in the past month. As a result, Invesco’s chief investment officer stated that this rally resulted in some stocks becoming overvalued. Elsewhere, Germany continues to face its struggles, with expectations that its economy will contract by 0.2% in 2024. However, the German government expects that the economy should return to growth in 2025, with the GDP anticipated to rise by 1.1%, slightly up from the previous forecast of 1.0%, reported Euronews. By 2026, growth should reach 1.6% as a result of private consumption and stabilizing inflation.
Regarding the Japanese economy, after a two-day meeting that ended on 20 September, the BOJ maintained the overnight call rate target at 0.25%.
Chinese and Japanese Economy- The Road Ahead
Fortune reported that the stimulus measures announced by Beijing consisted of rate cuts, freeing-up of cash at banks, robust liquidity support for stocks, and a pledge to end the long-term fall in property prices. The surge seen in Chinese equities in the recent past reasserted their influence on broader emerging-market gauges and weighed over the performance of fund managers running underweight positions.
Experts opine that the durability of such a rebound should influence the year-end performance of index-tracking funds. This will also have direct implications for nations having trading and investment links with the Chinese economy. Recently, The World Bank announced that China’s economic growth is expected to further slow in 2025 despite the stimulus measures. The World Bank projects that China’s growth will decline to 4.3% in 2025, down from an expected 4.8% in 2024. However, Mint reported that the recent surge in Chinese stock prices might demonstrate anticipations of increased inflation. This will raise nominal profits and the expectation of stronger corporate and economy-wide fundamentals. Therefore, experts are now more confident that China might turn its economy around and report much stronger growth in the last quarter and 2025.
While the market experts appear to be optimistic about Chinese equities, they should know that the Japanese economy is on a strong footing. Russell Investments believes that consumer spending stands at healthy levels and corporate earnings should continue to grow. While the investment firm expects that BoJ will remain cautious when considering future rate increases, it highlighted that capital expenditure intentions from businesses are strong.
Chinese Stimulus Measures to Help Foreign Economies
Mint also reported that the positive spillovers to the global economy will be greater if fueled by healthier Chinese economic fundamentals rather than just increased nominal prices. Talking about the developed economies, Australia and South Korea are expected to benefit the most, especially if there is even a partial recovery in the Chinese real-estate sector. This is expected to fuel demand for Australian iron ore, along with other raw materials.
South Korea, which has been tagged as a home to key suppliers in Chinese regional and global value chains, should witness increased demand for its industrial exports. If China’s willingness to spend increases, countries producing luxury products or attracting Chinese tourists, like France and Italy, are expected to benefit significantly over the upcoming months and around the next Chinese New Year in January.
Our Methodology
To list the 7 Most Undervalued Foreign Stocks to Buy According to Analysts, we used a Finviz screener to screen for ex-US companies. Next, we narrowed the list by choosing the stocks that are trading lower than the forward earnings multiple of 23.52x (since the broader market trades at ~23.52x, as per WSJ). Finally, we ranked the chosen ones according to their potential upside, as of 10 October. We also mentioned the hedge fund sentiments around each stock, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? 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 ground crew preparing an aircraft for launch, a sense of urgency in their movements.
CAE Inc. (NYSE:CAE)
Forward P/E Ratio as of 10 October: 17.58x
Average Upside Potential: 14.80%
Number of Hedge Fund Holders: 18
CAE Inc. (NYSE:CAE) offers simulation training and critical operations support solutions in Canada and other countries.
In Q1 2025, CAE Inc. (NYSE:CAE) showcased a healthy demand for its civil market solutions and a strong increase in its backlog, hinting at healthy future revenues. Despite facing some headwinds, the company is optimistic regarding its long-term outlook and expects growth in both revenue and margins. The company anticipates doubling of in-service commercial jets over the upcoming 20 years.
CAE Inc. (NYSE:CAE) anticipates the easing of narrowbody aircraft supply constraints and the resumption of pilot hiring in H2 2025. Also, it expects secular growth in the defense sector, considering the increasing budgets and demand for training and simulation solutions. Notably, strategic defense programs and government outsourcing are contributing to the strong backlog. Wall Street continues to expect a meaningful operating leverage moving forward, primarily as it continues to optimize operations and capitalize on healthy underlying demand in key sectors.
The strong book-to-bill ratio in CAE Inc. (NYSE:CAE)’s Civil Aviation segment exhibits strong underlying demand. This places the company for potential growth after the temporary industry headwinds subside. The Defense sector demonstrated promising signs of improvement, with better-than-anticipated margins and a favourable outlook for FY 2025.
Artisan Partners, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“In the industrials sector, we had two detractors: CAE Inc. (NYSE:CAE) and U-Haul. CAE is an aerospace and defense company providing pilot training via either the sale of full flight simulators or third-party training services. When we established our position in CAE in May 2022, the business was still recovering from the impacts from COVID. Lack of investor interest offered us an attractive entry point to purchase a high-quality business that was well positioned in a growing industry having high barriers to entry. Over its history, the company has transformed itself from a flight simulator equipment maker to primarily a services company with a high share of recurring revenues. Though the civil business is growing well on positive commercial traffic trends, disappointing margins in the defense segment continue to weigh on investor sentiment. Management now expects defense margins to remain mid single digits versus prior expectations of an inflection in the second half of the year, citing legacy low-margin contracts and delays in new program awards. While progress on margins has been disappointing, CAE remains a good business, and the valuation is compelling on both an absolute basis and relative to the broader market as it now sells for just 11X normalized EBITA.”
Overall CAE ranks 6th on our list of the undervalued foreign stocks to buy according to analysts. While we acknowledge the potential of CAE as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than CAE 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.