We recently published a list of 12 Most Undervalued Stocks to Invest in for Under $20. In this article, we are going to take a look at where NOV Inc. (NYSE:NOV) stands against other most undervalued stocks to invest in for under $20.
As we know, nearly all sectors in the S&P 500 index saw gains in 2024, a year dominated by AI enthusiasm and a strong US economy. According to FactSet, the S&P 500 is anticipated to report earnings growth of 11.7% for Q4 2024, marking the highest YoY growth rate reported by the index since Q4 2021. According to an update (as of January 17), the Q4 2024 earnings season for the S&P 500 has seen a strong start. FactSet added that both, the percentage of S&P 500 companies publishing positive earnings surprises and the magnitude of earnings surprises, appear to be above recent averages.
As per Morningstar, the growth drivers identified last year that supported the broader market in 2024 are now receding. The rate of monetary policy easing has been slowing, inflation has been sticky, long-term rates are increasing and the broader US economy continues to slow. Amidst these uncertainties, what lies ahead?
S&P 500 to End at 6,200-6,300 in 2025, Says Goldman
Goldman Sachs’ investment strategy group anticipates the S&P 500 to end between 6,200-6,300 by year-end, demonstrating a total return of ~7% – 8%. The companies’ earnings growth is expected to be the critical driver of the S&P 500’s 2025 return, and Goldman forecasts that the index’s EPS will increase by ~10% to $265 this year. When this earnings growth gets combined with a 1.3% dividend yield and some sort of compression in the P/E ratio, the firm’s base case this year demonstrates high-single-digit total returns and the S&P 500 target range of 6,200 – 6,300.
What to Expect in 2025?
As per Goldman Sachs, the US stocks have faced pressures as of now in January, due to factors including higher Treasury bond yields, after strong performance in 2024 pushed S&P 500 index at elevated valuations. As per the group, the yield on the 10-Y treasury note is expected to conclude the year lower compared to the current level. The firm recommends to remain invested in the US stock market, even though the broader market is historically expensive.
As per Goldman, the US stock market often delivers gains when there are economic expansions. The investment strategy group of the bank has placed 80% odds on the fact that the US economy will continue to expand in the current year. While the elevated valuation can expose the market to downside risks, the investment firm believes that the US equities will outperform intermediate-duration U.S. bonds and cash considering its economic growth forecast of 2.3%.
Our Methodology
To list the 12 Most Undervalued Stocks to Invest in for Under $20, we used a screener to find stocks that are under $20 and have a forward P/E of less than 15x, as of January 17. We also mentioned hedge fund sentiment around each stock, as of Q3 2024. The stocks were ranked in ascending order of their hedge fund sentiment.
At Insider Monkey we are obsessed with 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).
An engineer inspecting a complete set of oil and gas components.
NOV Inc. (NYSE:NOV)
Forward P/E as of January 17: 8.7x
Share Price as of January 17: $15.62
Number of Hedge Fund Holders: 34
NOV Inc. (NYSE:NOV) is engaged in designing, constructing, manufacturing, and selling systems, components, and products for oil and gas drilling and production, and industrial and renewable energy sectors. Also, the company manufactures and supplies equipment utilized in the drilling of natural gas wells, including rigs, drill pipes, and other related technologies. There is a potential for NOV Inc. (NYSE:NOV) to benefit from secular themes like a resurgence in demand for natural gas. Furthermore, its strong position in international markets is expected to offer a buffer against regional downturns.
With countries focusing on transitioning to cleaner energy sources, natural gas is being preferred because of its lower carbon emissions as compared to coal and oil. This shift can fuel increased investment in natural gas exploration and production. NOV Inc. (NYSE:NOV)’s expertise in offering equipment for both onshore and offshore drilling places it well to capitalize on these promising trends. The company is expected to see elevated demand for its specialized natural gas extraction and processing equipment, resulting in increased order volumes and better pricing power.
Furthermore, a natural gas boom is expected to result in the development of new gas fields, mainly in regions with underdeveloped resources. This will create opportunities for NOV Inc. (NYSE:NOV) to expand its global footprint. Hotchkis & Wiley Funds, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“NOV Inc. (NYSE:NOV) is a leading provider of oilfield capital equipment, consumables, and services. Like APA, the downturn in energy prices has reduced oilfield activity below sustainable levels, impacting NOV’s sales and profitability. As activity rebounds, most of NOV’s product lines should experience significant increases in volume and pricing. In the longer term, the earnings power of its Rig Aftermarket business should improve, given its large installed base.”
Overall, NOV ranks 6th on our list of most undervalued stocks to invest in for under $20. While we acknowledge the potential of NOV 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 time frame. If you are looking for a deeply undervalued AI stock that is more promising than NOV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
