We recently compiled a list of the 11 Best Undervalued Stocks to Invest in Now. In this article, we are going to take a look at where Novartis AG (NYSE:NVS) stands against the other undervalued stocks.
How Will Tariffs Affect the Market?
On March 5th, BBC reported that the US stock market had fallen after the tariffs sparked trade war fear. The recent imposition of tariffs by President Donald Trump on imports from Canada, Mexico, and China has sparked significant concerns about a potential trade war. The United States has imposed a 25% tariff on most imports from these countries, with Canadian energy products facing a 10% tariff. On the other hand, tariffs on Chinese imports have been increased from 10% to 20%. As a result, Prime Minister of Canada, Justin Trudeau announced immediate tariffs on $30 billion worth of US goods, with plans for additional tariffs on $125 billion in goods over the next three weeks. Moreover, China imposed tariffs ranging from 10% to 15% on various US agricultural imports, such as chicken, pork, and soybeans. The tariffs have raised fears of inflation and a broader trade conflict, leading to a decline in US and global stock markets. As a result, the S&P 500 experienced a significant drop, and European markets also closed lower.
Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.
While talking about how the Fed might react to the tariffs, Fisher mentioned that it is a little too early to guess. The Fed is bringing inflation down and we are getting closer to the 2% target, however, at the same time tariff increases the cost of doing business, which might slow down the economy and tickle up inflation. To conclude Fisher noted that tariffs won’t be digested quickly and will take time.
Our Methodology
For this article, we used the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we aggregated a list of stocks trading below the forward P/E of 15 and earnings growth expectations this year. Next, we cross-checked the Forward P/E from Seeking Alpha and Earnings growth from Yahoo Finance. Lastly, after sorting our list by market capitalization, we ranked the stocks in ascending order of the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 database of hedge funds.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A doctor holding a microscope in front of a laboratory sample of healthcare products.
Novartis AG (NYSE:NVS)
Forward P/E Ratio: 10.27
Earnings Growth This Year: 7.93%
Number of Hedge Fund Holders: 33
Novartis AG (NYSE:NVS) is a Swiss pharmaceutical company that focuses on creating and selling medicines to treat various health conditions. The company develops both new, patented medicines and generic versions of existing drugs. It develops medicines for various conditions including, immunology, dermatology, cancer, cardiovascular diseases, and more.
On February 20, Florent Cespedes from Bernstein maintained a Buy rating on the stock with a price target of CHF115. Recently, Novartis AG (NYSE:NVS) announced a deal to repurchase Anthos Therapeutics for up to $3.1 billion. This acquisition allows the company to regain control over Abelacimab, a promising drug for preventing blood clots and strokes.
During the fiscal fourth quarter of 2024, the company reported a significant increase in net income during Q4 2024, exceeding Wall Street forecasts. It grew its net income by 26% to $3.93 billion. Moreover, the company also achieved a record-high free cash flow of $16.3 billion, marking a 24% increase. This demonstrates the company’s financial strength and ability to generate substantial cash from its operations. It is one of the best-undervalued stocks to invest in now.
Aristotle Capital International Equity Strategy stated the following regarding Novartis AG (NYSE:NVS) in its Q2 2024 investor letter:
“We have been investors in the Swiss pharmaceutical company Novartis AG (NYSE:NVS) for over a decade, having first purchased shares in 2011. During our holding period, the company has undergone significant changes. Vasant (“Vas”) Narasimhan was promoted to CEO in 2018 and, we believe, has positively influenced the company’s culture and helped shift the business more toward innovative medicines. Examples include the sale of Novartis’s consumer (over-the-counter) joint venture; the divestiture of its vaccines and animal health businesses; the spinoff of Alcon, a global leader in the treatment of eye diseases and eye conditions (also an International Equity holding); and most recently, the spinoff of generics manufacturer Sandoz. As part of its portfolio transformation, Novartis has been able to improve its margins and gain share of branded pharmaceuticals. With many catalysts having neared completion, we decided to sell Novartis to fund the purchase of what we believe is a more optimal investment in Roche.”
Overall NVS ranks 10th on our list of the best undervalued stocks to invest in now. While we acknowledge the potential of NVS 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 time frame. If you are looking for an AI stock that is more promising than NVS 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.