In mid-January, I named three penny stocks that could rise 500% in a year. It was an outlandish goal, of course. Few companies rise 100% within 12 months, let alone 500%.
Yet, performance has been excellent so far. As a group, the three stocks have already returned almost 20% — double what the S&P 500 generates on an annual basis. And more gains are likely for these ultra-cheap stocks this year.
That’s because certain elements can tilt the stock market odds in your favor.
… Even unexpected details can matter. Electric vehicle meme stock Mullen (NASDAQ:MULN) now trades almost 100% higher than it did last month simply because retail investors decided to like the stock.
As experienced investors all know, you don’t get extra points for style.
It’s why my quantitative Profit & Protection stock-picking system is based on how factors actually performed in the past. Not how I think they should have done.
The result? The system ends up with A+ growth stocks right next to A+ turnarounds. It turns out that both Cathie Wood and Warren Buffett can be correct at once. (It’s the massive dull part in the middle that doesn’t go anywhere).
Today, that same system is going bananas for undervalued, cheap companies. No fewer than 435 stocks under $20 now score an A- or higher in their total grade. And if you eliminate companies with Cs in quality (i.e., those that generate no current return on capital invested), almost 100 firms still remain.
I’ve further narrowed this list to my top 20 Profit & Protection stocks. Not all will do well, obviously. But much like the penny stocks from mid-January, these are the companies that seek to maximize your odds of success.
Part 1: Low Price-to-Book
Regular readers will immediately know that certain price-to-book (P/BV) companies are great deals. According to data from Thomson Reuters, companies in the second P/BV quintile (i.e., those with book values between 1x-1.5x) tend to outperform the market by around 2% per year.
That’s because these firms tend to have valuable assets that create a floor to their share price. Car rental firms like Hertz (NASDAQ:HTZ), for instance, can sell their fleets on the used car market if they ever need the money. And cash-generating companies should theoretically never trade below their cash value once you deduct liabilities.
Today, my Profit & Protection system has identified several of these undervalued gems.
Velodyne Lidar (VLDR)
Source: jejim / Shutterstock.com
Growth: A+ | Value: A+ | Quality: A+ | Momentum: A | Total: A+
Velodyne Lidar (NASDAQ:VLDR) is a San Jose-based firm that develops the light-based radar system found in autonomous vehicles. Shares trade at 1x book value, suggesting that investors buying the company for its assets will receive its intangible intellectual property (and all future cash flows!) for free.
Independent proxy advisor firm Glass, Lewis & Co have also given their blessings.
“We see that the combination of Velodyne and Ouster is expected to result in a stronger financial position, increased operational efficiencies and an accelerated path to profitability than either company would be expected to achieve on a standalone basis.”
There’s no guarantee of business success, of course. Lidar is a highly competitive industry, with firms like Luminar Technologies (NASDAQ:LAZR) and Innoviz (NASDAQ:INVZ) leading the way. But if history is any guide, firms like Velodyne Lidar eventually become a steal once they trade close enough to liquidation values.
Aeva Technologies (AEVA)
Growth: A+ | Value: A- | Quality: A- | Momentum: A+ | Total: A
In 2021, shares of Aeva Technologies (NYSE:AEVA) jumped on rumors that Apple (NASDAQ:AAPL) was considering a move into electric vehicles. Shares would trade as high as $9.75, valuing the autonomous vehicle firm at over $2 billion.
Fast forward to 2023, and shares of the lidar firm have sunk to book value. Shares trade in the $1.70 range.
These low prices have now become a recipe for greater gains ahead. Aeva holds around $350 million in cash and holds virtually $0 in debt. That means an investor buying shares today will receive around $1.60 of cash per for every $1.65 they spend!
Of course, the Californian-based tech startup can still go bankrupt if it fails to build a lasting business. Aeva burns through around $27 million of cash per quarter, so its cash value is not guaranteed over the long term.
But history tells us that such low valuations still tend to produce positive results. Aeva’s stock is already up 28% for the year. And if Apple begins to announce significant progress on its electric car, investors can expect its share price to rise back to that $9.75 level it once saw.
Latham Group (SWIM)
Growth: B+ | Value: A+ | Quality: A- | Momentum: A | Total: A
Latham Group (NASDAQ:SWIM) is the largest in-ground swimming pool builder in North America. It’s a surprisingly lucrative business thanks to high industry concentration; operating profits are typically in the 6%-7% range — far higher than the 2%-4% that most homebuilders achieve.
Nevertheless, widespread fears of a U.S. recession are now pushing SWIM’s valuations into the ground. Latham now trades at 7.2x forward earnings and 1.1x price-to-book, a surprisingly low figure for a firm expected to generate a 9% free cash flow margin this year. A 3-stage discounted cash flow (DCF) model suggests that Latham’s justified value is closer to $10.40, a 175% upside.
That said, an investment in Latham does come with some risks. Around half of the company’s book value is in intangible brands and acquisitions. Unlike Aeva Technologies, Latham doesn’t have its entire asset value sitting as currency in the bank. And the construction business is historically cyclical. Housing booms can quickly turn into busts.
But investors have likely pushed Latham’s valuations down too far. Economic data is telling us that the housing slump could already be bottoming out. And with Latham trading at a significant discount to its justified value, it’s no surprise that my Profit & Protection system highlighted this company to buy.
Source: rafapress / Shutterstock.com
Growth: A+ | Value: B | Quality: B+ | Momentum: A | Total: A-
Former fintech darling SoFi (NASDAQ:SOFI) now trades at book value, a fate usually reserved for zero-growth banks. A combination of slowing student loan refinancing and shrinking tech multiples means that the online bank now trades at less than a quarter of its 2021 valuation.
Still, SoFi has a long growth runway ahead. Analysts believe the company will increase revenues by another 30% in 2023 and 26% in 2024. And the firm continues to expand into new offerings like credit cards and same-day funding. InvestorPlace analyst Luke Lango has called the firm a potential “Amazon of Finance” for its ambition to service every aspect of personal finance. He believes the company could be worth 24x in 10 years.
My quantitative Profit & Protection system agrees, at least on a 12-month basis. Companies trading at near-book value tend to outperform over the following year, even if they are unprofitable. And given SoFi’s recent 35% jump in share price, its momentum is also suggesting that the worst could be behind.
AquaBounty Technologies (AQB)
Source: Pavel Kapysh / Shutterstock.com
Growth: A+ | Value: B | Quality: B- | Momentum: A | Total: B+
AquaBounty Technologies (NASDAQ:AQB) is a Massachusetts-based firm attempting to commercialize land-based salmon farming. The company can now produce almost 1,450 metric tons of fish across its two farms, and analysts expect revenues to grow from $1.2 million in 2021 to $6 million by 2023.
The firm trades at a significant discount, however, because profits are not expected until 2025. AquaBounty’s high overheads also mean that every $1 of fish sold costs around $2-$3 to produce. Shares now trade at $1.13.
That creates a strange opportunity. Because AQB now holds around $2 cash per share, its management could (in theory) liquidate the company and provide investors with an immediate 77% return on investment. Some biotech firms have done the same under similar circumstances. The fish farming firm could also close down its smaller plants to focus on cash retention and profitability. Either way, history tells us that companies selling at these discounts tend to perform well over the following 12 months, at least on average.
Duluth Holdings (DLTH)
Source: Piotr Swat / Shutterstock.com
Growth: B+ | Value: A+ | Quality: A+ | Momentum: A+ | Total: A
In 2011, clothing brand Duluth Holdings (NASDAQ:DLTH) released its first ad campaign. Its humorous videos quickly turned the Wisconsin-based firm into an overnight sensation. Revenues would hit $163 million by 2014, and almost $700 million by 2022.
Duluth’s growth, however, has recently slowed. Analysts now expect growth to flatline in 2023, and shares trade at a 56% discount from last year.
That’s created an opportunity to get in for cheap. Duluth’s shares now trade at book value, a level unseen since May 2020. (The last time that happened, shares returned 4x within a year!
Duluth’s balance sheet is also quite strong. The firm holds $77 million in cash, which would cover its entire long-term debt burden. Cash flows are also quite strong, thanks to keen inventory control. Apparel has long been a tough business, but Duluth’s online selling and advertising has somehow managed to make it work.
Source: IgorGolovniov / Shutterstock.com
Growth: B | Value: A+ | Quality: A- | Momentum: A+ | Total: A
Michigan-based Steelcase (NYSE:SCS) produces furniture, seating and storage systems for commercial use. Rolling chairs… desks… cubicles… all the products you might imagine from Office Space minus the printer.
The firm has even managed to remain profitable in 2020-2022, a Herculean feat with the rise of work-from-home employees.
Still, shares now trade at book value on fears of a profitability slowdown. The last time the firm traded at that level was in November 2009.
Investors will need some patience with Steelcase. During the 2008-09 financial crisis, SCS would take until early 2011 to break out of its trading range. And it was also one of the slower companies to recover from the Covid-19 pandemic; enterprise customers are generally reluctant to upgrade office space after a large economic meltdown.
But those who can afford to wait will likely reap the rewards. Steelcase’s low valuations (particularly its 0.26x P/S ratio) suggest that shares are extremely undervalued and could rise 100% or more.
Source: Rawpixel.com / Shutterstock
Growth: B+ | Value: A+ | Quality: B+ | Momentum: A | Total: A
In 1977, Warren Buffett’s Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) found itself owning a significant portion of the Kaiser Aluminum & Chemical Corporation, a discounted business bought through its insurance subsidiaries. By 1980, Kaiser’s market value had risen by over 33%, becoming one of Berkshire’s first major wins.
Today, another under-the-radar business is trading at a similar discount:
The 160-year-old firm looks much like an old Buffett value stock. The company provides environmental services to the steel and metals industries, helping firms recycle their waste. The firm also creates value-added products from recycled materials.
It’s a cyclical business, but one that creates profits over the long run. Since 2000, the firm has generated almost a billion dollars of free cash flow. It’s a company that you need a great deal of patience to win.
Today, Harsco is once again facing profit pressures… and a low stock price to match. Shares trade at under $8, pricing the firm at close to its book value. And though growth investors will certainly want to stay away, the Profit & Protection system tells us that firms with these range-bound profits will eventually return to more average valuations.
Part 2: Statistical Arbitrage
When I worked on Wall Street, one of the fastest-growing strategies at the time was statistical arbitrage, the action of taking two highly correlated assets, buying the cheaper one, and shorting the other. When prices of the two assets eventually converge, the trader walks away with a profit.
It remains a powerful tool for hedge funds. Even if markets fall, any short position would offset losses. And if the correlation between the two assets breaks down, the trader could simply close their position and try again. It’s a boring strategy, but one with relatively little downside.
Ordinary investors can use a simplified version of this tactic, where they buy companies at historically low valuations and sell them once they merge with the average. While this removes the “pure” statistical arbitrage (since you don’t have an equivalent short position), it does allow regular investors to sleep more soundly at night. Short positions, after all, have a bad habit of blowing up.
It’s also a tactic that has been proven to work by the Profit & Protection system. Companies that trade for low valuations (particularly low price-to-sales ratios) tend to outperform over the next 12 months as their valuations catch back up.
As we continue down the Profit & Protection list, many of these arbitrage-type picks emerge.
JELD-WEN Holding (JELD)
Source: IgorGolovniov / Shutterstock.com
Growth: C | Value: A+ | Quality: A | Momentum: A- | Total: B+
JELD-WEN Holding (NYSE:JELD) is a manufacturer of building products, including doors, windows and panels. It’s a relatively stable business, even if not a high-returning one.
Fears of a U.S. housing slowdown have therefore understandably had an outsized impact on JELD-WEN. When your firm averages a 2.1% net margin, sale prices only have to drop around 2.1% to wipe out your entire profit, all else equal. In the finance industry, it’s known as high operating leverage.
The leverage, however, cuts both ways; an equivalent 2.1% increase in revenues would double net profits. And recent bullish data on pending home sales from Redfin is suggesting that an increase in home prices is becoming equally likely.
That means JELD-WEN’s low valuations are likely too far below its long-run average. The company now trades for 6.8x forward P/E and 0.20x P/S, compared to its averages of 11.7x and 0.5x, respectively. That suggests a 2x return is possible if JELD-WEN moves back toward more normal valuations.
Ford Motor (F)
Source: D K Grove / Shutterstock.com
Growth: B | Value: A+ | Quality: A+ | Momentum: B | Total: B+
Ford Motor (NYSE:F) is a fascinating case of statistical arbitrage. Not only have traders long used the carmaker’s shares as a hedge against General Motors (NYSE:GM). Ford’s stock also tends to yo-yo over business cycles, making it an attractive play for market timers. Shares traded below $5 during the Covid-19 pandemic, and then over $20 just two years later.
Today, Ford’s $13 share price is once again signaling an attractive entry point. From a historical standpoint, its current 6.5x forward P/E valuation has typically resulted in a 10% return for each of the following three years.
Ford is also seeing a new leg of growth in electric vehicles. Its recently launched F-150 Lightning pickup truck has earned strong early reviews, and customers are snapping up available inventory. Though Ford isn’t at trough valuations, the Profit & Protection system believes its low relative price is now attractive enough for a small investment.
Tupperware Brands (TUP)
Source: nipastock / Shutterstock
Growth: B | Value: A | Quality: A- | Momentum: A+ | Total: A
Tupperware Brands (NYSE:TUP) has long traded at a discount to its consumer products peers for its reliance on direct selling. Such multi-level marketing practices can often border on illegal pyramid schemes, making these companies targets for both regulators and short sellers. A recent slowdown in sales has further dampened sentiment around Tupperware’s future. Shares trade at $4, compared to $20 as recently as April 2022.
Yet, investors need to remember that statistical arbitrage is only interested in relative valuations, not absolutes. Shares of the Orlando-based firm now trade at 4.4x forward P/E, a third of its long-run value. On a price-to-sales basis (and the one the Profit & Protection system favors), its shares trade at one-eighth of historic figures.
That means investors in Tupperware could be sitting on a multibagger if Wall Street analysts are correct and growth returns in 2024. Tupperware Brands may never trade at the valuations of its peers that sell through normal retail channels, but it won’t need to for investors to reap a handsome return.
Source: IgorGolovniov / Shutterstock.com
Growth: A+ | Value: B | Quality: A+ | Momentum: B- | Total: B+
Sabre Corp (NASDAQ:SABR) runs a three-way oligopoly of the global distribution system (GDS) that powers airline and hotel bookings. It’s a highly protected industry because of its economies of scale. Even Google and Priceline’s systems rely on firms like Sabre to aggregate availability, since each new query must consult hundreds of airlines and thousands of hotels within seconds.
Sabre’s valuations, however, are highly cyclical because travel demand is variable. Shares traded as high as $26 in 2018, and as low as $6 during the 2020 Covid-19 downturn. High fixed costs, paired with volatile revenues, tend to make for a bumpy ride.
That makes Sabre an unusually strong statistical arbitrage play. The company’s volatile stock makes it a swing trader’s dream, while its wide-moat business will tempt value investors seeking strong business models.
The Texas-based firm does have a debt problem, of course. The company has almost $4 billion in net loans, far outweighing its $2.3 billion market cap. But history tells us that well-positioned firms usually recover. And with shares trading under $7, Sabre has at least a 100% upside to return to more normal valuations.
JetBlue Airways (JBLU)
Source: Roman Tiraspolsky / Shutterstock.com
Growth: A | Value: A+ | Quality: B+ | Momentum: A | Total: A+
The airline industry has long been a bumpy ride, as investors in JetBlue Airways (NASDAQ:JBLU) will know. Shares of the NYC-based low-cost carrier traded under $9 during the 2020 Covid-19 pandemic and then rebounded to over $20 in just over a year.
Today, shares of JetBlue are once again trading under $9, as if another pandemic is underway. JBLU’s price-to-sales ratio sits at 0.28x, or around 60% lower than average, while its price-to-book hovers around 0.75x. Wall Street analysts have cut JetBlue’s expected 2024 EPS by 23% since January.
Meanwhile, airlines themselves are expecting the opposite. On Jan. 26, JetBlue, American Airlines (NASDAQ:AAL) and Alaska Air (NYSE:ALK) all forecast better-than-expected full-year earnings. And even embattled Southwest Airlines (NYSE:LUV) reported a large boost in its passenger load factor from 78.5% to 83.4% this month.
JetBlue will obviously see more volatility through 2023. Rising costs and an acute pilot shortage could push out a full recovery into 2024.
But opportunities to buy JetBlue on discount don’t come that often. The airline trades at a premium to legacy carriers for its newer fleet, so any opportunity to buy in for cheap is quickly picked up by my quantitative system.
Source: petrmalinak / Shutterstock
Growth: A+ | Value: B+ | Quality: A | Momentum: B | Total: A-
2021 was an unusual year for clean energy stocks. For a brief moment, any company that even mentioned electrification or batteries could see their shares jump 100% or more. Underwear maker Naked Brand saw a 40% price rise in November 2021 after announcing it would merge with a commercial electric vehicle maker.
The eventual shakeout would cause investors to lose billions. It didn’t matter if you were a trillion-dollar car company or a zero-revenue startup — a deflating bubble took every firm down with it.
And that’s the market where Stem (NYSE:STEM) finds itself today.
The San Francisco-based firm was founded in 2016 to provide clean energy storage for the renewables market. Its hardware-software solution combines physical batteries with AI software to help manage and improve grid stability.
It’s a winning product mix that has helped Stem grow from $40 million in Q3 revenues last year to almost $100 million today. Its contracted backlog has expanded from $312 million to $817 million — enough to provide several years of revenues.
The firm also has a clear path to profitability. Batteries are sold at a small markup with the expectation that recurring service revenues will eventually make up the difference. It’s a business model that has turned other hardware/software firms like Palo Alto Networks (NASDAQ:PANW) into billion-dollar businesses.
STEM shares also remains at a discount, thanks to the broad selloff in the electrification market. Shares trade for under $10, roughly where they started in October 2020 during its SPAC debut. And as the Profit & Protection system makes clear, high-growth firms with Stem’s price movement tend to gain handsomely over the next 12 months as valuations normalize.
Mistras Group (MG)
Source: shutterstock.com/Romix Image
Growth: B | Value: A+ | Quality: B+ | Momentum: A | Total: B+
Mistras Group (NYSE:MG) is a slow-growth company that helps industrial firms protect physical assets. Services include field inspections, lab testing, maintenance and monitoring.
Since 2010, the company has averaged around $30 million in free cash flow, a low but stable amount. And that makes Mistras an ideal candidate for statistical arbitrage. Shares typically trade in a narrow range between 0.2X price-to-sales to 1.0X.
Today, Mistras Group is once again trading at the low end of its range from increases in input costs. Gross margins could decrease 50 basis points to 28.6% this year, and sell-side analysts have cut their estimates as a result. Wall Street now expects MG to generate only 19 cents in EPS this fiscal year, a 20% cut from the prior year.
Nevertheless, analysts are expecting an eventual recovery once pricing catches up to increased labor costs. Mistras’ earnings are expected to hit 52 cents per share in 2023 and 82 cents in 2024. That suggests investors could make up to a 3X return on their investment.
Wolverine World Wide (WWW)
Source: Mal_Media / Shutterstock.com
Growth: B+ | Value: A+ | Quality: A | Momentum: A+ | Total: A
Wolverine World Wide (NYSE:WWW) makes the statistical arbitrage list for its relatively stable business and low share price. The shoe licensing firm manages 13 separate brands, including Merrell, Hush Puppies, Saucony and Sperry, giving the parent entity a level of stability in both good times and bad.
The firm’s shares also trade in a relatively wide range, creating a larger-than-usual opportunity for profits. Shares traded as high as 1.93X in April 2021 and low as 0.3X P/S as recently as last month.
Together, these factors make Wolverine an ideal swing trader’s stock. Earnings are expected to remain in the $1.50-$2.10 range through 2024, giving a measure of protection against greater drawdowns. And the firm’s management has long had a keen eye on cost control; return on invested capital is typically around 15% — well above its cost of equity.
Today, a three-stage DCF model suggests that WWW shares are worth almost $50 in the long run. And with the stock trading at only $15, that suggests well over a 200% potential gain.
Cushman & Wakefield (CWK)
Source: JHVEPhoto / Shutterstock.com
Growth: B+ | Value: A+ | Quality: A+ | Momentum: C | Total: A-
Cushman & Wakefield (NYSE:CWK) closes out our arbitrage list for its strong global brand and reasonable share price. The real estate service company has over 400 offices in around 60 countries and manages over 4.8 billion square feet of commercial real estate space.
Shares are also trading at the lower end of their historic spectrum. Markets are valuing CWK at 7.2X forward P/E, a notable discount from its 10.5X long-term average. And its price-to-sales ratio sits at only 0.3X, 33% lower than historic figures.
Ordinarily, these low multiples are a sign that future earnings could decrease. And Cushman & Wakefield is seeing some worries on this front. Analysts are projecting up to a 16% slowdown in 2023 operating earnings on higher overhead costs.
But as Cushman CEO John Forrester himself observed in Q3’s earnings call, “the longer-term fundamentals that support our business and our industry remain robust.” If he’s correct, investors could see anywhere from a 30% to 50% return as multiples return to normal.
Part 3: Deep Value
The Profit & Protection system also occasionally recommends deep-value companies — lossmaking companies with shares that trade for near-zero. That’s because history tells us that ultra-cheap companies do produce positive returns on average, as long as you buy them for low enough. Shares of near-bankrupt DVD rental firm Redbox saw shares rise 4x on at least two occasions in 2022 before disappearing for good. And meme stock Bed Bath & Beyond (NASDAQ:BBBY) is now replaying a similar story.
Of course, most of these firms eventually find themselves at zero; it’s essential to put in stop-loss orders to protect any gains. (And also, never be too greedy with gains from deep-value plays). But for the more daring investors, these half-dead companies provide an irresistible pool of short-term potential.
Growth: B+ | Value: A+ | Quality: B | Momentum: A | Total: A-
Unifi Inc (NYSE:UFI) is a textile manufacturing firm that produces and sells recycled products — a relatively unattractive business that fails to consistently earn its cost of capital. In November, the company reported disappointing results from an inventory glut at apparel companies.
Yet, downtrodden stocks like Unifi’s can become profitable investments if they’re bought for cheap enough. And after months of price declines, Unifi has finally been picked up by the Profit & Protection system for its rock-bottom valuation.
Today, markets value UFI at 0.53X book value and 0.2X price-to-sales, around half of its long-term averages. The last time UFI traded in this range was in 2008.
Broader macroeconomic trends are also pointing in the right direction. Analysts expect the firm to return to typical profits by 2024, and to generate over 9% return on invested capital (ROIC) the same year.
Unifi has also been receiving a dose of self-help. Management has been actively exploring growth areas in auto, industrial and home. And they have been renewing a push of their REPREVE recycled polyester brand.
This won’t turn Unifi into an overnight cash cow. Textiles remain a hypercompetitive industry, and no amount of internal improvements at Unifi can change that. But given its low valuations today, the firm might not need that for shares to rise 100% as valuations return to historic levels.
Owens & Minor (OMI)
Growth: B+ | Value: A+ | Quality: A- | Momentum: A | Total: A+
Shares of Owens & Minor (NYSE:OMI) hit a rough patch in mid-2018 after the healthcare firm hit a “perfect storm” in its core distribution network. The firm cut its dividend, removed its CEO, and reduced guidance after a series of natural disasters and self-inflicted issues cut into performance. OMI shares would drop from the $16-$20 range to $3 the following year.
Today, shares of OMI are gyrating once again. The stock has fallen from over $44 in February 2022 to $20 on fears of a slowdown in customer reorders. Many healthcare providers are now choosing to deplete their stockpiled items, and OMI management noted that procedural volumes remain weak. Shares of the healthcare supply firm now trade at around half of their typical forward P/E ratios.
This provides an opportunity for deep-value investors. Distribution firms tend to operate on razor-thin margins since volumes are large, meaning that even small improvements in pricing can have outsized effects on profitability. That also means that the company’s price-to-sales ratio (one of the top Profit & Protection metrics) is extremely low.
Distribution businesses like Owens & Minor can often take a long time to recover. But when they do, their high operating leverage means that shares can easily rise 2X or more.
Under Armour (UAA)
Source: Sundry Photography / Shutterstock.com
Growth: B+ | Value: A | Quality: A | Momentum: A+ | Total: A-
In the mid-2010s, it looked as if Under Armour (NYSE:UAA) had become unstoppable. Numerous sponsorship deals and new products would help the sportswear firm drive record sales. By 2015, even Nike’s “Goliath” status would be called into question.
Since then, however, Under Armour’s growth has become inconsistent at best. The firm has struggled with increased competition from athleisure brands and failed to make much headway in the lucrative sneaker market. Revenues would actually decline in 2020, and shares now trade for less than a quarter of their 2015 peak.
Essentially, the once-hot stock has now become a deep-value play.
Several metrics back this up. Under Armour now trades at under 1X price-to-sales, less than a quarter of rivals like Lululemon (NASDAQ:LULU) and Nike. And on an EV-to-EBITDA metric, UAA only achieves a valuation on par with Gap (NYSE:GPS) and Puma SE, two companies with even deeper issues than the Maryland-based firm.
Since September, however, shares of Under Armour have begun to rise again. And as data from the Profit & Protection system has shown, companies with long drawdowns followed by sudden improvements tend to keep outperforming over the next 12 months. Under Armour might not kill Nike’s business anytime soon. But its improving inventories and low share prices mean that investors will likely profit anyway.
Conclusion: 20 Undervalued Stocks to Buy Under $20
Swing traders will realize that different economic cycles require different tactics. Growth investors outperformed in 2020-2021, while defensive investors beat the market in 2022.
2023’s slowing economy is providing a new opportunity for value investors to profit. Negative sentiment and cheap valuations mean that even ordinary firms have the potential to become multibaggers — the ability to return multiples of your original investment.
Not every company in this list will perform well, of course. My quantitative Profit & Protection system seeks to maximize returns, not hit rates. Nevertheless, investors who buy a wide swath of these inexpensive companies with reasonable fundamentals can expect to do well in the long run. It’s a recipe that has worked since at least the 1950s, and there’s no reason to expect any different this time around.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tom Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad.