13 Best Undervalued Stocks To Buy Now
In this article, we will discuss the 13 Best Undervalued Stocks To Buy Now. You can skip our market analysis and go directly to the 5 Best Undervalued Stocks To Buy Now.
Global equities this year have declined due to a shift in the macro environment and various geopolitical risks emanating from the Russia-Ukraine war and US-China trade tensions. Moreover, investors around the world remain concerned about the Fed's aggressive monetary tightening in response to increasing inflation, which may lead to a recession. The US stock market has well and truly entered the bear market, with the Nasdaq 100 down more than 31% in 2022. The selloff in the US equities is led by a fall in valuations of highly valued technology companies due to concerns that rising interest rates will impede future profit growth.
With the stock market continuing to fall every month, analysts and investors are trying to find out where will the bottom of this cycle be. Analysts at Goldman Sachs believe that the bottom will not come until the US central bank announces halting the interest rate hike, and judging by remarks of the Fed Chair Jerome Powell, it can be inferred that the stoppage in rate hike is still not in sight.
The bear and bull cycles in the stock market have occurred regularly over the years, and although investors may fear a bear cycle, it is true that true value investors relish a bear market as they get to buy strong companies at an undermining valuation. Warren Buffett, the legendary investor, has a famous saying, “be fearful when others are greedy, and greedy when others are fearful.” It is no secret that the general sentiment in the market today is fear, with investors worried about constant falling prices. This type of market condition can be a big opportunity for long-term investors to buy stocks at low prices.
Photo by Adam Nowakowski on Unsplash
Our Methodology
We scanned Insider Monkey's database of holdings of 900 hedge funds and picked some notable stocks with low forward P/E ratios. We took the forward P/E ratio metric from Yahoo Finance pages for each company. These stocks are popular among elite hedge funds and also have bullish ratings from Wall Street analysts.
Best Undervalued Stocks To Buy Now
13. Ternium S.A. (NYSE:TX)
Forward P/E ratio as of December 19: 6.15
Number of Hedge Fund Holders: 12
Founded in 2005, Ternium S.A. (NYSE:TX) is a steel manufacturing company that operates in steel and mining segments. The company manufactures semi-finished and finished steel products and iron ores, which are either supplied directly to manufacturers and steel processors or end-users. Ternium S.A. (NYSE:TX) operates in Mexico, Argentina, Colombia, Brazil, and the southern United States.
On November 3, 2022, Ternium S.A. (NYSE:TX) reported its third-quarter result, with revenues reported at $4.13 billion, beating market expectations by $144.79 million. The company’s Normalized EPS stood at $0.78. The CEO, during the conference call on third-quarter results, stated that the management is confident in the shipment levels for the upcoming quarters. The company’s efforts to expand its product range will help in sustaining and slowly increasing shipments in 2023.
As per Insider Monkey’s database, 12 funds remained bullish on the company at the end of Q3 2022. Contrarian Capital had the biggest long position on the company’s shares at the end of the third quarter.
In addition to Ternium S.A. (NYSE:TX), Callon Petroleum Company (NYSE:CPE), Ring Energy, Inc. (NYSE:REI), and Laredo Petroleum, Inc. (NYSE:LPI) are included in our list of 13 best undervalued stocks to buy now.
12. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Forward P/E ratio as of December 19: 5.94
Number of Hedge Fund Holders: 16
Star Bulk Carriers Corp. (NASDAQ:SBLK) is a global shipping company based in Greece. The company owns and operates a fleet of dry bulk carriers that consist of 128 vessels with a carrying capacity between 52,247 and 209,537 dwt (deadweight tonnage). The company transports major and minor bulks, including iron ore, grain, coal, bauxite, fertilizers, and steel products.
On September 26, 2022, Omar Nokta, an analyst at Jefferies, reduced his price target on Star Bulk Carriers Corp. (NASDAQ:SBLK) to $26 while keeping a Buy rating on the stock. According to the analyst, the sector is currently under-pressure by low demand for steel and iron ore. However, the analyst believes that the trend of coal shipment will continue to rise for several quarters.
According to Insider Monkey’s database, 16 hedge funds owned stakes in the company at the end of the September quarter. Oaktree Capital Management held the biggest stake in Star Bulk Carriers Corp. (NASDAQ:SBLK) at the end of Q3 2022.
Here is what Massif Capital has to say about Star Bulk Carriers Corp. (NASDAQ:SBLK) in its Q3 2021 investor letter:
We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts… (Click here to see the full text)
11. Barclays PLC (NYSE:BCS)
Forward P/E ratio as of December 19: 5.03
Number of Hedge Fund Holders: 13
Founded in 1690, Barclays PLC (NYSE:BCS) is a British multinational bank. Its operating divisions are divided into the UK division and the International division. Barclays PLC (NYSE:BCS) provides services in retail banking, wholesale banking, credit cards, investment banking, and wealth management.
On December 6, 2022, Raul Sinha, an analyst at JPMorgan, raised his price target on Barclays PLC (NYSE:BCS) to £220 and upgraded his rating on the shares to Overweight. The analyst believes that Barclays PLC (NYSE:BCS) has the most commendable risk/reward among U.K. domestic lenders, making it his top pick.
According to Insider Monkey’s database, 13 hedge funds had stakes in Barclays PLC (NYSE:BCS) at the end of the September quarter. Arrowstreet Capital remained the leading stakeholder of the company at the end of the third quarter.
10. PBF Energy Inc. (NYSE:PBF)
Forward P/E ratio as of December 19: 4.71
Number of Hedge Fund Holders: 32
Founded in 2008, PBF Energy Inc. (NYSE:PBF) is a petroleum refiner and a supplier of unbranded transportation fuels, lubricants, heating oil, petrochemical feedstocks, and other petroleum products. The company operates in the United States through its refineries in Ohio, New Jersey, Delaware, and Louisiana. PBF Energy Inc. (NYSE:PBF) operations are divided into two business segments: refining and logistics.
On November 9, 2022, Ryan Todd, an analyst at Piper Sandler, increased his price target on PBF Energy Inc. (NYSE:PBF) to $69 while keeping an Overweight rating on the stock. The analyst has made an upward revision in his forecast for company margins in 2023.
As per Insider Monkey’s database, 32 hedge funds owned stakes in PBF Energy Inc. (NYSE:PBF) at the end of the third quarter. Millennium Management remained the leading stakeholder of the company at the end of Q3 2022.
9. Altice USA, Inc. (NYSE:ATUS)
Forward P/E ratio as of December 19: 3.73
Number of Hedge Fund Holders: 42
Headquartered in New York City, United States, Altice USA, Inc. (NYSE:ATUS) is a telecommunication and media company that offers digital cable television, high-speed broadband and ultra-HD video, local news, internet, voice offerings, data, and digital advertising solutions. The company provides its services to clients in the United States.
On October 13, 2022, Michael Rollins, an analyst at Citi, lowered his price target on Altice USA, Inc. (NYSE:ATUS) to $8 while keeping a Buy rating on the stock. The analyst believes that the company has an opportunity of improving its performance by investing in fiber. According to the analyst, the company would do better if it could take some or all of its assets private.
As per Insider Monkey’s database, 42 hedge funds had stakes in Altice USA, Inc. (NYSE:ATUS) at the end of the third quarter. HG Vora Capital Management remained the leading stakeholder in the company at the end of Q3 2022.
In its Q2 2022 investor letter, MPE Capital, an asset management firm, highlighted a few stocks and Altice USA, Inc. (NYSE:ATUS) was one of them. Here is what the fund said:
Two (very) costly mistakes I’ve made over the last twelve months have been my investments in Altice USA, Inc. (NYSE:ATUS) and Poshmark. Both are down over 50% from my initial purchase price. I not only poorly appraised business quality; I also incorrectly appraised the intrinsic value of both of these companies. It should rarely end up being the case that we pay over intrinsic value, in the worst case we should never lose money on an investment. I will dive into one of these mistakes below and maybe dive into the other in a future letter. My thinking when buying Altice USA was that they operate as a duopoly in their main footprint, the New York Tri-State area. They provide a needs-based service: internet, video, and voice services. I figured this is a very stable business with high barriers to entry. Management seemed competent as well based on historical capital allocation decisions. I didn’t fully appreciate at the time how poorly positioned they were relative to Verizon Fios, as well as how fiercely competitive the business can get on promotions and customer acquisition.
Altice offers hybrid fiber coaxial (HFC) while Fios offers fiber-to-the-home (FTTH). FTTH is a far superior product, which has led to some share loss to Fios in the parts of their footprint that overlap. There have also been some subscriber losses in their other footprint due to new cable entrants and fixed wireless offerings.
My original thinking was that the video business will go to zero over time due to continued pressure from services like Netflix. In hindsight, I overstated their free cash flows excluding the video business due to difficulties disaggregating their business results. This FCF delta is a huge contributor to the difference between my current and original estimates of intrinsic value. Now, it’s possible that the video business doesn’t go to zero; however, I have a hard time envisioning that many households in ten years will still subscribe to linear television.
After losing some subscribers and facing some headwinds, they are now reinvesting many billions over the next few years to fiberize the majority of their footprint. I think this is a great plan and it will hopefully cement their position as a true duopoly in the New York TriState area. However, in their other major footprint, new fiber entrants are coming in and competition will only intensify. There are also some new entrants entering this space like Starlink satellite internet and fixed wireless internet from tier-one mobile carriers. I think these will generally be more expensive and inferior to FTTH; however, they may end up putting some pricing pressure on Altice over time.
8. PDC Energy, Inc. (NASDAQ:PDCE)
Forward P/E ratio as of December 19: 3.65
Number of Hedge Fund Holders: 28
Founded in 1969, PDC Energy, Inc. (NASDAQ:PDCE) is an independent exploration and production company that operates in the United States. The company engages in the production, exploration, development, and marketing of crude oil, natural gas, and natural gas liquids. PDC Energy, Inc. (NASDAQ:PDCE) offers low-risk organic development of oil and natural gas deposits from tight reservoir rocks and shales. It holds and manages stakes in highly producing-wells.
On November 2, 2022, PDC Energy, Inc. (NASDAQ:PDCE) reported its Q3 2022 result, reporting revenue of $1.51 billion, beating market expectations by $449.99 million. The company’s Normalized EPS for the quarter stood at $3.77.
As per Insider Monkey’s database, 28 hedge funds remained bullish on PDC Energy, Inc. (NASDAQ:PDCE) at the end of Q3 2022. Harris Associates came out to be the biggest holder of the company’s shares at the end of the quarter.
7. Viatris Inc. (NASDAQ:VTRS)
Forward P/E ratio as of December 19: 3.41
Number of Hedge Fund Holders: 50
Viatris Inc. (NASDAQ:VTRS) is a pharmaceutical company that produces medications for patients in a wide range of important therapeutic areas, including both infectious and noncommunicable disorders. Viatris Inc. (NASDAQ:VTRS) was formed by the merger of Mylan N.V. and The Upjohn Company in November 2020.
On November 7, 2022, Viatris Inc. (NASDAQ:VTRS) reported its Q3 2022 result. The company’s revenue stood at $4.08 billion in the quarter. The Normalized EPS of $0.87 beat market expectations by $0.04. The CFO, while commenting on the result, stated that the company has paid down around $2.1 billion in debt so far this year, which puts it one quarter ahead of schedule in reaching our 2022 debt pay down goal.
At the end of Q3 2022, 50 hedge funds in Insider Monkey’s database were long Viatris Inc. (NASDAQ:VTRS). Camber Capital Management remained the leading stakeholder of the company at the end of Q3 2022.
Miller Value Partners made the following comment about Viatris Inc. (NASDAQ:VTRS) in its Q3 2022 investor letter:
Viatris Inc. (NASDAQ:VTRS) fell 17.8% during the quarter. Viatris reported 2Q22 revenue of $4.12 billion, -3% Y/Y on an operational basis, below consensus of $4.19 billion, and diluted EPS of $0.26, compared to a net loss per share of -$0.23 in 2Q21, ahead of analyst expectations for EPS of $0.19. The company generated 2Q22 FCF of $718.6 million, bringing TTM FCF to $3,082.9 million, or a FCF yield of 26.6%. In the 1H22, Viatris retired $1.5 billion in debt, which puts the company well on track to achieve its FY22 debt paydown target of $2.0 billion. While the company lowered FY22 revenue guidance to be in a range of $16.2-16.7 billion, compared to previous guidance for revenue of $17-17.5 billion, this revision is solely attributable to the incremental impact of FX headwinds. The company reaffirmed FY22 guidance for Adjusted EBITDA of $5.8-6.2 billion (36.5% margin at midpoint) and FCF of $2.5-2.9 billion, or a forward FCF yield of 23.3%. The company generated approximately $84 million in new product revenues in 2Q22, bringing 1H22 revenues to $205 million, which were primarily driven by interchangeable Semglee in the US, and the company remains on track to achieve ~$600 million (3.7% of FY22 guided revenue at the midpoint) in FY22 new product revenues.
6. Vermilion Energy Inc. (NYSE:VET)
Forward P/E ratio as of December 19: 3.28
Number of Hedge Fund Holders: 21
Based in Calgary, Canada, Vermilion Energy Inc. (NYSE:VET) engages in the exploration, development, and production of oil and gas. The company operates in Canada, North America, Europe, and Australia. The majority of Vermilion Energy Inc. (NYSE:VET) revenue comes from the production of petroleum and natural gas.
On November 11, 2022, Cody Kwong, an analyst at Stifel, reduced his price target on Vermilion Energy Inc. (NYSE:VET) to C$42 while keeping a Buy rating on the stocks. The third-quarter revenues of Vermilion Energy Inc. (NYSE:VET) stood at $712.89 million, beating market expectations by $148.64 million. The Normalized EPS of the company stood at $1.19, missing market expectations by $0.37. As per Insider Monkey’s database, 21 hedge funds owned stakes in Vermilion Energy Inc. (NYSE:VET) at the end of the September quarter. D E Shaw was the most bullish fund on the company’s stock at the end of Q3 2022.
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Disclosure: None. 13 Best Undervalued Stocks To Buy Now is originally published on Insider Monkey.
