The 7 Most Undervalued Value Stocks to Buy Now
Value stocks are always a sensible class of equities to consider as an investment. It’s all about finding stocks that are believed to be trading below where they should be based on fundamental metrics. Identifying value is part science and part art.
The science requires calculating metrics that determine a given stock’s fundamentals. Basically, anything that can be measured can be considered fundamental. Price-to-earnings (P/E) ratios, revenue, net income, earnings per share (EPS), the list goes on and on.
The art is the subjective area of identifying value stocks. It’s really about taking those objective fundamental metrics and subjectively qualifying them as representing “value.” That’s what this list is all about. These are companies with objective metrics that make them appear subjectively undervalued. In other words, these are strong investment opportunities.
Let’s take a look at these seven undervalued value stocks.
Undervalued Value Stocks: Walmart (WMT)
Walmart (NYSE:WMT) stock might not be in such a bad place at the moment. That’s certainly what its price chart suggests following news out of the company that consumers are pulling back as the effects of inflation ripple throughout the economy.
Walmart warned that higher food and fuel costs are causing consumers to reduce spending in other areas. That decreased demand caused Walmart to issue notice that it will reduce prices on unsold inventory that had built up in its warehouses. That has caused many to believe the company’s profits will fall in the coming quarter, sending prices downward after the news was issued.
The good news is that WMT share prices fully rebounded in the following days, erasing the $10 loss it suffered.
As a consequence, Walmart could see an increase in foot traffic as savvy consumers read between the lines and seek to take advantage of marked-down inventory. In other words, the profit the company expected to lose could be balanced by an increase in volume.
United Rentals (URI)
There are multiple broad fundamental reasons to believe United Rentals (NYSE:URI) stock is very undervalued at its current $323 price. For one, analyst consensus is that the company’s equity should trade 20% higher, at $391.88.
On top of that, United Rentals has posted earnings that have been in range with analyst expectations or bested analyst expectations in each of the last four quarters. Investors should be particularly keen on the fact that the company’s EPS performance has grown increasingly stronger in each of those four quarters.
The company, which provides equipment rentals, reported earnings on July 27 which included record second-quarter revenue of $2.771 billion. That led the company to increase its forward revenue guidance to a range between $11.4 billion and $11.7 billion from prior guidance between $11.1 billion and $11.5 billion.
Undervalued Value Stocks: Ally Financial (ALLY)
Ally Financial (NYSE:ALLY) stock benefits from having recently been given the nod of approval by Warren Buffett. That’s because Ally Financial is among multiple new positions in the portfolio of Berkshire Hathaway (NYSE: BRK-A, NYSE:BRK-B).
Buffett and his Berkshire Hathaway firm have become synonymous with deep value over multiple decades. He amassed a fortune by taking long positions in firms that represent deep value. So, the fact that ALLY stock has recently found its way into Berkshire’s portfolio strongly implies it is among the most undervalued value stocks.
Ally Financial looks to be undervalued based on its P/E ratio, which currently stands at 4.88. That P/E ratio is better than roughly 85% of industry-wide peers. Further, it is far lower than its median of 9.26 over the past decade.
Pharmaceutical giant AbbVie (NYSE:ABBV) stock is roughly 13.5% undervalued based on target price alone. Some investors worry that AbbVie will drastically lose value in 2023. That’s because the firm will lose patent protection for Humira in 2023.
The drug accounted for $19.8 billion in sales in 2020. That figure increased to $20.7 billion in 2021. And so far, it has totaled $10.099 billion in 2022, a 1.7% increase over the same period in 2021. So, it is clear that AbbVie has every reason to react accordingly.
The good news for investors is that the firm is using the same patent strategy it employed for Humira and applying it to other assets. In this case, that means the company is launching what has been referred to as a “patent thicket” or a “patent wall” around Imbruvica, another important drug.
There’s also some indication that AbbVie will employ the same tactics to delay any generic drugs that would replace Humira in 2023. What we know now is that revenues are strong, and Humira continues to perform well under strong patent protection.
Undervalued Value Stocks: Valero (VLO)
Valero (NYSE:VLO) is notable for its position as a refiner of oil. The fact that the company, per CEO Joe Gorder, continues “to maximize refinery run rates while executing our long-standing commitment to safe, reliable and environmentally responsible operations” is why it is currently a value play.
Valero operates 15 refineries across North America. This is key to understanding why the company should be considered undervalued at present. Not much new refining capacity has been built since the 1970s, while the remaining capacity has dwindled as older operations shut down.
That means that the remaining capacity is exceptionally valuable as the U.S. struggles to bring more supply online domestically and lower pieces at the pump. The result is that Valero saw $51.64 billion in revenues this quarter, up from $27.75 billion a year ago during the same period.
Intel (NASDAQ:INTC) seems to consistently find its way onto lists of deeply undervalued and underappreciated stocks. Investors can easily point to its already very low P/E ratio, currently near a 10-year low, and build a narrative around its value. But that has been the case for some time, as Intel is almost always cheap on that basis.
But the notion that Intel must rise at some point just became much more compelling, as Congress passed the Chips and Science Act after a year of debate. The bill provides $52 billion in subsidies for U.S. semiconductor production.
Therefore, investor capital will likely flock to INTC as it looks to be among the firms most likely to benefit.
Undervalued Value Stocks: Meta Platforms (META)
The news is mixed for Meta Platforms (NASDAQ:META) and its stock. On the one hand, the company posted its first-ever year-over-year drop in revenue in its history. That only adds to the woes the firm has experienced since it announced a large transition toward the metaverse and a massive rebranding effort. From that perspective, a compelling negative narrative easily emerges.
On the other hand, Meta’s userbase actually grew, defying expectations and setting up the potential for a positive narrative. META stock sits at what is essentially its lowest price in 10 years. But the company still rakes in boatloads of cash and posted $6.7 billion in profits in the quarter.
Digital ad revenues are suffering as advertisers balk at increasing marketing expenses as signs of weaker consumer demand continue to emerge.
Even if this is the beginning of the end for Meta, it will rise in price in coming quarters. That’s the worst-case scenario and an unlikely one to be sure.
On the date of publication, Alex Sirois 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.