Investors who earn more than the market are usually those who invest in stocks that are healthy and cheap. This is a smart strategy to buy low and sell high. Investing in undervalued stocks has been one of the most common practice to outperform the market. An undervalued stock has a lower market value than its intrinsic value, which makes it a great investment. Intrinsic value is usually calculated by identifying the stock’s cash flows, assets and liabilities. Investors can buy an undervalued stock and sell high when the market realized its value of stock as price rises.
Looking for stocks that are both cheap and stable is not difficult. As an investor, if you keep an eye on the market, with some basic research you can earn huge profits from these undervalued stocks. The few basic steps to find undervalued stocks are:
Lower Price Earnings Ratio (P/E)
Price Earnings ratio is the first ratio to evaluate a stock’s value. This ratio compares the market price of a stock with the company’s earnings. For example, if the P/E ratio of a company is 15 and all the competing companies have a higher P/E ratio then this is a potential stock to watch out.
Lower Price Earnings Growth Ratio (PEG)
The PEG ratio further confirms the value of a stock. Dividing the P/E ratio by the earnings growth rate gives you the PEG ratio. For example, if the PE ratio is 15 and earnings growth rate is 20% then divide 15 by 20 you will get you will get 0.75. The lower this PEG ratio the better the opportunity to invest in.
High Dividend Yield
If a company’s dividend payment rate exceeds that of its competitors, this may indicate the stock is undervalued. For example, if the company’s dividend yield is 3% and the industry’s dividend yield is 2% than it is a high dividend yield and makes this company’s stock an undervalued stock.
Low Market to Book Ratio
Market to Book ratio is calculated by dividing the share price of the stock with the book value. The higher the Market to Book ratio the more inflated is its market price. Hence a lower Market to book ratio means higher potential for future growth
Even though there is no guarantee of the way the financial market moves, the above ratio gave a fairly good idea about undervalued stocks to invest in. Keeping in mind these above ratios we have compiled a list of ‘Best Undervalued Stocks’ below which will guide you in the best possible way:
List of 9 Best Undervalued Stocks
|Name||Price Earnings Ratio||Price Earnings Growth Ratio (5 year expected)||Dividend Yield||Market to Book Ratio|
|Bank of America||17.18||0.54||1.86%||1.38|
Alibaba is a massive international business, connecting businesses-to-consumers, businesses-to-businesses, and even consumers-to-consumers. Alibaba.com is the leading platform for global wholesale trade. Alibaba is booming. Revenues have more than doubled within the last two years. The stock of Alibaba is also on a continuous rising streak.
Also, the company reports a very high forward PEG ratio which is an excellent indicator of higher future earnings and a higher market price. The company also has a low market-to-book ratio which means that the current market price is highly understated.
These numbers indicate that Alibaba is one of the Best undervalued stocks to buy now.
2. Bank of America
Bank of America is one of the world’s leading financial institutions, serving individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. Bank of America offers industry-leading support to approximately 3 million small business owners through a suite of innovative, easy-to-use online products and services.
Despite a comparatively higher PE ratio than the industry average, the PE of Bank of America is low as compared to its competitors which means greater upside potential for the future. Moreover, the Market book value is also low which indicates a higher future price of the company’s stock. The bank’s forwards PEG is low but it also has a comparatively higher PE ratio which suggests that the company’s stock is undervalued.
Looking at the above stats, Bank of America is one of the best-undervalued stocks to buy in 2021.
3. Verizon Communication
Verizon is one of the largest communication technology companies in the world. It is the world’s leading provider of technology, communications, information, and entertainment products, and services. The tech company reported $128 Billion in revenues in 2020 and has also been ranked amongst the top 20 companies on the Fortune 500 list.
The company’s forward PEG ratio is also higher indicating higher future earnings. The market to book ratio is also lower which means greater potential for the company’s stock to rise in the future. Also, the company’s dividend yield is higher than the major companies in the industries again indicating the stock of Verizon is undervalued.
Verizon Communication is a company with greater upside potential in the future. A wise strategy would be to buy today at $56.07 and sell at a higher price in the future.
With nearly 2,800 stores in 35 states of the U.S., under two dozen banners, and annual sales of more than $121.1 billion, Kroger today ranks as one of the world’s largest retailers.
The supermarket chain has a good forward PEG ratio indicating higher future earnings. Moreover, the company’s market to book ratio is also lower meaning the stock is highly understated and has great potential to rise in the future.
Currently trading at $38, Kroger is on a bullish journey for the past 2 years. The company has great upside potential as indicated by the above-mentioned stats. As an investor, you should buy this undervalued stock now.
Tennant Company is a recognized leader in the cleaning industry. Its stock performance has been considered good after the sharp decline in March,202 due to COVID-19. Tennant Company might not be a large-cap stock, but it saw significant share price movement during recent months on the stock exchange. The stock has been on a bullish journey for over a year.
The company has a good forward PEG ratio, indicating revenue growth in the future. The market-to-book ratio of the cleaning company is also low which means the company’s stock is highly undervalued now.
Currently trading at $79.83, Tennant company stock is a good buy. Its intrinsic value is higher than the current market price and is on the list of undervalued stocks of 2021.
6. Upland Software
Upland Software Inc provides cloud-based enterprise work management software. The Company offers software applications that enable organizations to plan, manage and execute projects and work. The company has big clients Pepsico, Western Union, and GE Healthcare amongst its list of 10,000 clients.
This indicates a great upside potential. Moreover, the forward PEG ratio indicated higher future earnings. The company’s market book value is also considerably lower, which indicates the stock is highly undervalued and has great potential to rise in the future.
The stock of Upland software is on a bumpy ride with lots of trenches and peaks in the past 2 years. But even then it has been maintaining its growth. The stock is currently undervalued and investors seeking long-term profitable opportunities should invest in this undervalued stock in 2021.
Norton with LifeLock offers security for the digital world — by protecting PCs and Macs, mobile devices, privacy, and Internet-connected home network. NortonLifeLock is a Fortune 500 company that provides cybersecurity software and services
The company’s PEG ratio is also lower indicating the stock is greatly undervalued. As per Nasdaq’s research reports, the value of NortonLifelock is 24% undervalued based on the discounted cash flow method. The company’s dividend yield is also higher, comparatively.
NortonLifelock’s stock has been trading at a low price since COVID-19 and has recently recovered to the pre-covid-19 status. It is a wise choice to invest in the NLOK stock currently trading at $27.66 for the long term. This undervalued stock will provide greater opportunities for profit in the future.
8. Tyson Foods
Tyson Foods is a modern, multi-national, protein-focused food company producing approximately 20% of the beef, pork, and chicken in the United States. The company engages in the production of processed food. It is a Fortune 500 company and was ranked 109 in America’s Largest Public Companies 2018.
Tyson Foods has a trailing-twelve-months P/E of 11.19 compared to the Food – Meat Products industry’s P/E of 11.68. It has a good REG ratio, indicating higher future earnings. Moreover, it has a higher dividend yield as compared to the industry’s average dividend. Also, the market-to-book ratio is considerably low which means the stock is highly undervalued and holds great potential for future growth.
The stock of Tyson Foods was highly affected by Covid-19 but it has also recovered itself slowly and steadily. The company’s stock has been on a bullish trend since the sharp decline in March 2020. Also, the above stats indicate the stock is highly undervalued and has great future potential. Tyson food is one of the best-undervalued stocks to buy in 2021.
9. Merck & Co.
Merck & Co Inc is one of the world’s leading pharmaceutical health care companies, headquartered in New Jersey. As is typical for pharmaceutical firms, their principal business is medicines, biologics, vaccines, and consumer and animal products.
The pharma company’s forward PEG ratio also indicates higher future earnings, Moreover, the company Market to book ratio is slightly higher but compared to the industry figures it indicates a higher intrinsic value. The stock is booming and the best time to take advantage of this undervalued stock is to buy today.
Currently trading at $77.99, the stock of Merck and Co has great upside potential. The stock has been continuously rising and dropping in the past 2 years and is expected to reach new higher levels. The best strategy would be to buy this stock today and sell at a higher price in the future.
The above list of companies has been carefully selected keeping in mind what the statistics indicate. The majority of the above companies are low-cap companies that have great potential for future growth. As a long-term investment, buying these undervalued stocks today will yield multi-fold profits in the future.
The one downside of investing in undervalues stocks is that investors must wait a long period of time for their portfolio to become profitable. One way to make this waiting period worthwhile is to pick those undervalued stock which are paying high dividends. Investors can enjoy dividends while they wat for their portfolio to expand.
The above list of Undervalued Stocks will help you choose wisely and create a profitable investment portfolio.
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