These value stocks are cheap for bargain hunters looking for deals in the market
The market continues to present opportunities in value stocks for bargain hunters willing to put in the effort and take the risk. Most of the work is done for you here as I have identified value stocks that are cheaply valued. Those willing to take the risk and build a position will be handsomely rewarded.
There are many reasons to invest in value stocks and undervalued stocks. First, discounted prices indicate significant upside potential. Second, buying stocks at discounted prices provides a buffer against losses because they are already cheaply valued.
In addition, almost all of the companies discussed below are well established and relatively well known, making them less risky overall. For the most part, these are fundamentally solid companies with seemingly temporary problems, suggesting there is high potential for value appreciation in the future. Let’s take a look at these companies and their stocks.
Pfizer (PFE)
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Pfizer (NYSE:PFE) shares are currently slightly undervalued but could explode in the future. This combination of factors makes the stock too cheap to ignore at the moment.
Let’s start by giving some numbers about Pfizer and its stock to understand its value. Pfizer is expected to generate earnings per share of $2.37 in 2024. With a P/E ratio of 13.6, this suggests that the price of PFE shares in 2024 should be somewhere in the neighborhood of $32.25 (13.6 x S2.37).
That’s not much higher than Pfizer’s current price of $30, so at first glance, Pfizer doesn’t look like such a great opportunity. However, investors need to consider a few factors, including the dividend. It adds another $1.68 to the total return. That 5.6% yield changes the calculation of investing in Pfizer significantly.
In addition, Pfizer is well positioned to capitalize on the growth of oncology drugs following its acquisition of Seagen. The company also has potential weight-loss drugs in the pipeline and is worth considering as it pivots away from pandemic-related revenues.
Altria (MO)
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Altria (NYSE:MON) shares are expected to rise as high as $56 in the future. Currently, they trade for $49, and when the sizable dividend is factored in, it’s really too cheap to ignore. Simple math suggests that MO shares have upside potential of as much as 21% with the dividend included.
I believe investors should assume that MO stock is currently undervalued by 11%. The 21% I just mentioned is a best-case scenario. It is more likely that MO shares are worth 11% more than their current price.
The company is expected to generate earnings per share of $5.25 in 2024. With a forward P/E of 9.83, that equates to a fair price of $51.60. Adding in a $3.92 dividend brings the total value to $55.53 and a yield of 11%. That’s a pretty good yield, and as the company continues to pivot away from cigarette revenue, demand may continue to rise, leading to stronger P/E ratios in the future.
Bristol-Myers Squibb (BMY)
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Now is a good time to a position in Bristol-Myers Squibb (NYSE:BMY) stock for investors. Let me use the same calculation as above to show you why it makes so much sense to buy Bristol-Myers Squibb stock and hold it through 2025.
BMY stock is currently trading for $45, the lowest it has been in 5 years. Sales are declining and the company is battling patent expirations and other issues that make it less attractive overall. The consensus is that BMY stock is currently worth $58.
I estimate that the value is closer to $51 if you assume the company will earn 57 cents in 2024 and the P/E ratio is around 90. Add in a $2.40 dividend and the value is around $53.50. That’s not a huge return at a price of $45, but it gets more interesting.
Bristol-Myers Squibb is expected to generate earnings per share of $7 in 2025. The P/E ratio will decline, but not so much that it would prevent a significant increase in value.
Johnson & Johnson (JNJ)
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Johnson & Johnson (NYSE:JNJ) shares are worth about $170 by the same calculation. Analysts covering the stock have given it a consensus price of $172. That’s positive for bargain hunters, as JNJ shares are currently trading for $159 after above-average earnings in the second quarter.
Earnings per share came in at $2.82, above the $2.71 Wall Street expected. These results suggest that the $170 share price mentioned above may be too low given the rising earnings per share.
Johnson & Johnson stock is currently cheap as the dark cloud of litigation hangs over the company. It looks like the clouds are lifting and Johnson & Johnson will be liable for $8 billion.
Investors should really consider the opportunity that exists in Johnson & Johnson stock right now. The raw numbers suggest that the shares have value, and that’s not even taking the dividend into account. The value of that dividend adds another $5 to the total return, which still suggests value in J&J stock right now.
McDonald’s (MCD)
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MC Donalds (NYSE:MCD) continues to struggle with the impact of inflation on its business and its stock. There are several reasons why the company is too good to ignore right now.
McDonald’s is no longer seeing the double-digit revenue growth it was expecting in 2023 as the impact of inflation has slowed customer traffic in its stores. In response, the company recently launched its popular $5 menu. It has decided to extend this deal as it has, to some extent, restored the perception of value to the fast-food giant.
Investors will have to wait and see how this translates to earnings and revenue for the remainder of 2024.
Analysts covering McDonald’s currently give the company a consensus price of $305. That assumes increasing demand for shares, as expected earnings and P/E ratios suggest $251 is more accurate. The point is that the low-cost menu will bring more customers to McDonald’s restaurants. Some of those customers will overspend on higher-margin products and meals. The result is a return to higher profits, which should lift MCD’s share price.
Nextracker (NXT)
Next rascal (NYSE:NXT) offers tracking control systems that increase the efficiency of utility-scale solar projects. The stock is undervalued according to analysts. It is currently trading at $46, but benefits from a consensus price of $58.
I calculated using the same process as above that it should be worth around $46. However, I think Nextracker benefits from analyst optimism for several reasons.
For one, the company is focusing on the utility-scale solar market. That’s important because utility-scale solar projects are not as vulnerable to price increases as commercial-scale projects. The focus on utility-scale is also important for another reason. Recently, a lot of attention has shifted to the solar sector as a potential clean energy provider for the AI boom. AI hyperscalers are consuming more and more electricity while promising a smaller carbon footprint. Utility-scale solar and wind projects are obvious beneficiaries of this rising demand.
NextEra Energy (NEE)
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NextEra Energy (NYSE:No) is either a fairly valued stock or an undervalued opportunity with current earnings potential.
I believe the latter scenario is more likely, as NextEra Energy is well positioned to capitalize on the clean energy opportunities mentioned above. The company operates the world’s largest wind and solar projects while also owning a massive utility company.
This combination of business units uniquely positions NextEra Energy for AI energy opportunities.
According to analysts, the stock is currently fairly valued. I think investors should view it as undervalued but build a position and take advantage of the earnings opportunities from the nearly 3% dividend.
The stock has been volatile over the past few years as demand for clean energy stocks rises and falls. The shares have been hot in the past and could be poised to be again. If not, they are simply fairly valued and offer investors a nice extra income.
At the time of publication, Alex Sirois had no position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com Publishing guidelines.
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.
