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3 Nasdaq Stocks Trading Below the GF Value Line

GuruFocus.com
·5 min read

- By Margaret Moran

The terms "Nasdaq" and "undervalued" do not go hand-in-hand in the minds of most investors. The high-profile tech and tech-adjacent stocks that make up the index are usually awarded eye-watering valuations as investors have already priced in their anticipated growth for the years and even decades to come.

This pattern is clearly demonstrated by how, despite the economic downturn from the Covid-19 pandemic, the Nasdaq 100 is up 34% year to date compared to the S&P 500's 9% gain.


3 Nasdaq Stocks Trading Below the GF Value Line
3 Nasdaq Stocks Trading Below the GF Value Line

However, there are still some stocks on the index that trade with a margin of safety. According to the GuruFocus All-in-One Screener, a Premium feature, the following stocks are undervalued based on their price-to-GF Value ratio. The GF Value is an intrinsic value measurement developed by GuruFocus that considers historical earnings multiples (price-earnings, price-sales, etc.) as well as a company's past returns and growth and analysts' estimates of future performance.

Walgreens Boots Alliance

Walgreens Boots Alliance Inc. (NASDAQ:WBA) is a pharmacy company involved in the retail, wholesale and distribution of pharmaceutical and adjacent products. Headquartered in Chicago, the company is the owner of the Walgreens pharmacy chain in the U.S. and the U.K.-based health and beauty retailer Boots.

On Nov. 12, shares of Walgreens traded around $40.44 for a market cap of $35.02 billion and a price-earnings ratio of 80.88. The GuruFocus value chart rates the stock as significantly undervalued.

3 Nasdaq Stocks Trading Below the GF Value Line
3 Nasdaq Stocks Trading Below the GF Value Line

The company has a financial strength rating of 4 out of 10, with a cash-debt ratio of 0.01 and an interest coverage ratio of 1.52. The profitability rating is 8 out of 10 as the low operating margin of 0.7% is offset by the three-year revenue growth rate of 13.1%.

Walgreens is undervalued largely because it operates in the already saturated U.S. retail pharmacy business. There is not much room left for growth, and consistently low margins also dampen investor enthusiasm for the stock. However, the share price has tanked 35% over the past 12 months despite no notable indications that it is losing its existing business, and the trailing 12-month dividend yield is high at 4.54%.

The top guru shareholder of the stock is Pioneer Investments (Trades, Portfolio) with 0.18% of the equity portfolio, followed by Jim Simons (Trades, Portfolio)' Renaissance Technologies with 0.14% and John Rogers (Trades, Portfolio)' Ariel Investments with 0.08%.

Incyte

Based in Wilmington, Delaware, Incyte Corp. (NASDAQ:INCY) is a biopharmaceutical company that focuses on developing drugs for serious unmet medical needs. It has one drug, Jakafi, that has been approved for use by the U.S. Food and Drug Administration to treat myelofibrosis and polycythemia vera.

On Nov. 12, shares of Incyte traded around $82.45 for a market cap of $18.06 billion. The GuruFocus value chart rates the stock as modestly undervalued.

3 Nasdaq Stocks Trading Below the GF Value Line
3 Nasdaq Stocks Trading Below the GF Value Line

The company has a financial strength rating of 8 out of 10, with a cash-debt ratio of 30.2 and a debt-to-equity ratio of 0.02. The profitability rating is 5 out of 10, as the operating margin of -12.62% indicates operations are not yet profitable despite the three-year revenue growth rate of 20.3%.

As noted above, Incyte only has one drug so far that has been approved for treatment use. This makes the biopharmaceutical company's future difficult to assess for most investors, as only those who can gain an understanding of the pipeline might be able to estimate with any certainty whether the company will be able to get approval for additional drug candidates in the future.

The Vanguard Health Care Fund (Trades, Portfolio) is the top guru shareholder of the company with 4.79% of shares outstanding, followed by Simons' firm with 2.87% and Dodge & Cox with 1.68%.

Baidu

Baidu Inc. (NASDAQ:BIDU) is a Chinese internet and technology giant that specializes in artificial intelligence, internet services and search engines. Its most iconic products are the Baidu search engine and the Baike online encyclopedia.

On Nov. 12, shares of Baidu traded around $142.58 for a market cap of $48.63 billion and a price-earnings ratio of 96.54. The GuruFocus value chart rates the stock as modestly undervalued.

3 Nasdaq Stocks Trading Below the GF Value Line
3 Nasdaq Stocks Trading Below the GF Value Line

The company has a financial strength rating of 6 out of 10, with a cash-debt ratio of 1.98 and an interest coverage ratio of 3.37. The profitability rating is 8 out of 10, which reflects a decent operating margin of 9.68% and a three-year revenue growth rate of 14.4%.

Often considered the Chinese equivalent of Google, Baidu derives the majority of its revenue from online ads. The weakening of the Chinese economy amidst the U.S.-China trade war as well as the downturn caused by the Covid-19 pandemic have adversely impacted the company's main revenue stream. Investors are also concerned about increasing competition and the lack of profitability in its video streaming service iQiyi. In regards to long-term horizon, the company has been growing its revenue at the expense of profitability in a very similar manner to many U.S. tech giants with a focus on first gaining an indisputable market position.

Simons' firm is the top guru shareholder of the stock with 2.80% of shares outstanding, followed by Primecap Management with 2.35% and Sarah Ketterer (Trades, Portfolio) with 1.76%.

Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

Read more here:

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  • Virus Stocks: The Danger of Buying on Short-Term Tailwinds



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This article first appeared on GuruFocus.