Many stocks in the market continue to demonstrate strong growth potential, driven by strategic expansions, innovations and increasing industry demand. Of course, acquiring cheap securities does not always make sense for the long-term returns of a given portfolio. There are many value traps in the market that can drag portfolios down over varying periods of time. However, targeting undervalued stocks that are priced below their earnings potential usually offers greater long-term benefits than buying stocks that have exceeded their long-term growth curves. The price you pay for a given security is often what matters most, especially when measuring returns over a very long time horizon.
This year’s stock market growth, driven by technology companies, overlooked some undervalued stocks despite their solid performance. These currently undervalued stocks could gain momentum as the market broadens and the Federal Reserve begins easing monetary policy in the third quarter. Lower interest rates often boost undervalued stocks and provide investors with opportunities to buy on dips.
Although the market is absorbing all available data, some undervalued, established companies may still go unnoticed. Here are a few to keep an eye on.
Most undervalued stocks: JPMorgan Chase (JPM)
Source: Daryl L / Shutterstock.com
Recently, a proprietary AI tool was launched onto the market. JPMorgan Chase (NYSE:JPM) is best known for its wealth management services. This tool helps you write, brainstorm, and summarize documents and functions like a research analyst. It was detailed in an internal memo and is designed to increase productivity along with existing apps like Connect Coach and SpectrumGPT.
The company rolled out the LLM Suite to about 50,000 employees this year, making it one of the largest AI rollouts on Wall Street. Although Morgan Stanley works with OpenAI for its wealth management, it’s unclear whether the LLM Suite has encountered issues like other AI models that sometimes provide inaccurate information.
In addition, the LLM Suite provided access to world-class language models, supported by CEO Jamie Dimon, who saw AI as transformative and essential to improving efficiency and decision-making. This shift democratized information and enabled better and faster strategic decisions. Generative AI in finance will become more transformative, integrating with enterprise systems to improve data analysis and provide personalized advice. Adaptation will provide a significant edge, while hesitation can cause one to fall behind.
The stock rose 35% in 2023 on lower interest rate expectations and robust results in the second quarter of 2024. JPM also reported earnings per share of $4.40 and revenue of $50.99 billion on the back of a 50% increase in investment banking fees. Currently, the stock trades at 12 times forward earnings and has a dividend yield of 2.16%.
Altria Group (MO)
Source: Kristi Blokhin / Shutterstock.com
Now we are expanding further options in the e-vapor business, Altria Group (NYSE:MON) also has a strong dividend yield of 7.9%. Now that the nicotine market is shifting to e-cigarettes and oral pouches, Altria is adapting to this shift, despite dominating with Marlboro. The It’s On! brand increased its share of oral nicotine to 7.1%, and NJOY’s market share rose to 11.5% after expanding distribution. Although Altria still relies on smokable products, its advancement into next-generation markets promises future growth.
In the first quarter of 2024, Altria’s NJOY products will be seen in over 800,000 locations, approaching its goal of 100,000 locations this year. NOJY’s retail share in the US increased by 4.3%, indicating strong consumer acceptance and successful promotional strategies. Currently, the company holds a significant market share and is consolidating its position.
On July 31, MO stock fell $47.78 after the company announced it missed second-quarter earnings estimates and lowered 2024 guidance. The stock is up 18% this year, but the company’s adjusted EBITDA came in below expectations at $1.31. CEO Billy Gillford highlighted the company’s strong performance in smoke-free products. Full-year guidance now stands at between $5.07 and $5.15 per share.
Northrop Corp (NOC)
Source: Mike Mareen / Shutterstock.com
Northrop Grumman (NYSE:NOC) has consistently beat earnings estimates, reporting earnings per share of $6.36 versus a July 2024 estimate of $5.95. Projected earnings are at $24.99 per share for the current year, representing earnings growth of 7.3%. Earnings are expected to reach $27.71 per share next year, representing an increase of 10.87%. Despite the current 52-week high, future valuation metrics will be key in assessing potential stock moves.
However, recently released second-quarter results show a recovery, with earnings coming in at $6.36 per share and revenue at $10.2 billion. The stock also rose as the company announced it had raised its full-year 2024 guidance. CEO Kathy Warden stressed that Northrop is focused on increasing profitability through strategic investments and increased productivity. She assured that the cost increases on the B-21 bomber contract would ensure profitability despite concerns about rising supply chain costs.
On July 12, Northrop Grumman’s Cygnus cargo ship SS Patty Hilliard Robertson departed the ISS with 8,200 pounds of supplies. The company also launched two satellites for Space Norway’s Arctic Satellite Broadband Mission, using GEOStar-3 technology for northern polar and military communications. In addition, NOC and Boeing have partnered for the Space Force jamming satellite. Northrop Grumman expects cash flow to improve by 15% by 2026 and plans to increase its dividend.
At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.
As of the publication date, Chris MacDonald did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.
