The 7 Most Undervalued Value Stocks to Buy Now: August 2023
While the glitz and glamour of the hottest technology firms organically command our attention, investors should earmark some time for researching value stocks to buy. Fundamentally, these under-the-radar ideas offer the potential for significant returns. After all, it’s generally easier to actualize robust profits starting from a low point to a higher level, as opposed to wagering on strength begetting even more strength.
Another element benefiting undervalued value stocks is the “cushion” they provide. Frankly, the challenge with banking on high-momentum enterprises is that at any moment, they could collapse. If that happens, you could end up holding a big bag of – something. Instead, it may be more advantageous to acquire securities that relatively few are talking about. This may mitigate any downside should the bears materialize.
Finally, when targeting undervalued value stocks that you carefully vetted, there’s a chance that much of the negativity is already baked into the price. Theoretically, then, you might have nowhere to go but up. Of course, every market idea carries risks. But if you’re looking for a bargain, start with these value stocks to buy in August.
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McKesson (MCK)
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As a medical supplies company, McKesson (NYSE:MCK) – which also specializes in providing health information technology and care management tools, among other business units – makes arguably for an ideal example of undervalued value stocks. It’s boring, yes, but McKesson provides incredibly relevant services. Not only that, these services should be comparatively insulated from economic pressures.
Financially, McKesson prints a three-year revenue growth rate (per-share basis) of 15.2%, beating out 80.25% of its peers. At the same time, MCK trades at only 0.21x trailing sales. In contrast, the median price-to-sales ratio for the medical distribution industry stands at a loftier 0.53x.
Another factor that benefits McKesson is that the company is consistently profitable. Further, it’s also fiscally stable, as evidenced by an Altman Z-Score of 5.45. On a final note, Wall Street analysts peg MCK as a consensus strong buy. This assessment breaks down into eight buys, one hold, and zero sell ratings. The average price target lands at $473.44, implying over 10% upside potential.
Kroger (KR)
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Another boring enterprise that most certainly deserves to be on your radar for value stocks to buy, Kroger (NYSE:KR) is a grocery store giant. Fundamentally, what I appreciate here is that the company sits in the lower rungs of the trade-down effect. Basically, consumers facing financial pressures don’t go cold turkey in their budget cuts. Instead, they trade down until they reach an acceptable equilibrium.
For Kroger, the company benefits from households trading down nights out in restaurants with more time cooking at home. Of course, that bolsters grocery demand. Further, Kroger doesn’t really have a robust line of competition below its price point.
In the financial realm, Kroger prints a three-year revenue growth rate of 10.3%, above 69.47% of its peers. However, KR trades at only 0.23x sales, below the sector median of 0.45x. Also, the market prices the shares with a forward earnings multiple of 10.37x, which is incredibly cheap. Lastly, analysts peg KR as a consensus moderate buy with an average price target of $51.91. This implies over 10% upside potential.
American Express (AXP)
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Probably one of the most difficult value stocks to assess in this lineup, American Express (NYSE:AXP) is an iconic financial firm. It also gained a powerful reputation thanks to its consumer base, which, let’s face it, tends to operate on the higher side of the income spectrum. Fundamentally, that puts AXP in tricky water. If you’re rich and you anticipate financial troubles ahead, you probably don’t want to get into debt, especially plastic debt.
However, some evidence suggests that even the affluent are struggling these days. I hate to admit it but premium electric vehicle manufacturer Lucid (NASDAQ:LCID) – an entity which I consistently backed – has issued price cuts. Largely, such measures respond to the EV sector price war. At the same time, what’s a premium-label company doing with such incentives? Read between the lines.
Still, I like American Express because it posts a three-year sales expansion of 10%, above 63.65% of its peers. At the same time, AXP trades at only 2.12x sales, below 63.21% of the competition. To be fair, analysts peg AXP as a hold. That said, the average price target comes in at $178.54, implying 11% growth.
Laboratory Corp. (LH)
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An American healthcare company, Laboratory Corp. (NYSE:LH) – more commonly known as LabCorp – represents a classic case of undervalued value stocks. Per its public profile, it operates one of the largest clinical laboratory networks in the world. Better yet, LabCorp enjoys relative economic insulation. Basically, if you need lab results, you need lab results. And your doctor will dictate that, not the Dow Jones Industrial Average.
So far this year, LH has printed an “inoffensive” performance, up a bit over 5%. That’s not great but it’s certainly not terrible. Plus, its reliable (albeit lowly) forward yield of 1.34% can help pad the total return.
On a financial note, LabCorp prints a slightly better-than-average three-year revenue growth rate of 11.5%. Still, LH trades at 1.37x, below the sector median of 2.74x. Also, the market prices shares at a forward earnings multiple of 14.8x, which is incredibly undervalued. Turning to Wall Street, analysts peg LH as a consensus strong buy. Further, their average price target lands at $248.73, implying nearly 16% upside potential.
Olin (OLN)
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A chemicals company with a controversial twist, Olin (NYSE:OLN) manufactures chlorine and sodium hydroxide. Just hearing about the latter two business units, Olin sounds incredibly boring, and that’s two-thirds of the story. Fundamentally, I see OLN as one of the value stocks to buy in August because of the hidden, but necessary, role that chemical manufacturers play for our economy.
However, the controversy comes in the form of its ammunition business. Per its website, Olin owns the Winchester brand of ammo. Obviously, the political discourse has shined a glaring spotlight on the broader firearms industry. Still, shooting sports remain an incredibly popular activity in the U.S. As for the value proposition, Olin prints a three-year sales expansion rate of 18.8%, above 74.75% of its peers. Nevertheless, with OLN trading at 0.99x sales, this metric comes in lower than 61% of the competition.
Looking to the Street, analysts peg OLN as a consensus moderate buy. Overall, the average price target comes in at $64, implying nearly 16% upside potential.
Stellantis (STLA)
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On the surface level, automaker Stellantis (NYSE:STLA) might not appear as a natural choice for undervalued value stocks to buy. Since the beginning of this year, STLA gained nearly 23% of its equity value. Over the past 365 days, STLA gained almost 20%. That doesn’t quite sound like an enterprise that’s desperate for investors to give it a chance.
Still, in the past five sessions, STLA slipped almost 8%, which provides a relative discount. More importantly, I appreciate Stellantis’ approach to EVs. Let’s face it – electric-powered vehicles are soulless, boring machines that all look the same (sort of). However, Stellantis through its Dodge brand will soon release its Charger EV, basically an electric muscle car.
From the looks (and sounds) of this e-beast, the Charger EV should attract a new consumer base. However, don’t kid yourself. It’s not anywhere close to the real Hemi experience. However, I think investors will certainly take STLA’s subterranean forward multiple of 2.82x for a ride, thank you very much! On a parting note, analysts peg STLA as a strong buy with a $24.98 price target (implying over 39% upside).
JD.com (JD)
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For the ultimate contrarian seeking robust returns, Chinese e-commerce stalwart JD.com (NASDAQ:JD) offers an enticing idea for undervalued value stocks to buy in August. In case you’re wondering, that’s a mouthful of an SEO phrase. However, JD more than lives up to the description, as you’ll see below. Even from a cursory glance, you can tell it may have potential. After all, JD slipped over 39% since the Jan. opener.
Largely, concerns center on China’s economic recovery trek, which has weakened according to The Wall Street Journal. Certainly, constant media attention about China’s problems potentially getting worse doesn’t help matters. So, the bottom line is JD stock is terribly risky.
At the same time, if you don’t mind white knuckles, JD features a three-year revenue growth rate of 19.4%, outflanking 81.69% of sector rivals. Yet it only trades at 0.35x sales, below the sector median of 0.68x. Finally, analysts peg JD as a consensus strong buy with the worst individual rating a hold. Overall, the average price target stands at $62.86, implying over 80% upside potential.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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