With the market surging, investors might think that the best opportunities have passed them by. But don’t fear, there are still many worthwhile undervalued stocks to buy today.
In fact, these three companies all have proven business models, strong customer bases and pay attractive dividends. For investors looking for a bargain, these are three of the most undervalued stocks for July. That’s not just my opinion, either. Morningstar rates all three of these companies as 5-star stocks, indicating that these undervalued stocks are trading sharply below their analysts’ fair value assessment.
Verizon Communications (VZ)
Verizon Communications (NYSE:VZ) is one of America’s three large mobile carriers.
Investors have long looked to the telecom companies as great income investments. However, this paradigm has been shaken up. Rival AT&T (NYSE:T) slashed its dividend in 2022 as it tried to recover from the disastrous acquisition of Time Warner. Things have gone from bad to worse, with AT&T stock falling to near 30-year lows as analysts warn of more pain ahead.
However, Verizon isn’t AT&T. Verizon has been more prudent with its acquisitions, and it didn’t pile up quite as much debt. The telecom industry is facing challenges, but Verizon’s business is still on a solid footing. Shares sell for less than eight times forward earnings and offer a 7.5% dividend yield.
Here’s Morningstar’s analyst Michael Hodel making the case for VZ stock in a recent note:
“[Verizon] has been battered, but Morningstar thinks the drubbing is undeserved. We believe the market is too focused on Verizon’s challenges in adding postpaid consumer wireless customers, and we expect the company to move cash flow higher this year and beyond.”
It’s understandable why VZ stock has slumped. But the company should return to earnings growth in 2024. As that happens, the panic around its outlook should fade, and investors will be richly rewarded.
Wells Fargo (WFC)
Despite the jitters in the banking industry, some of the large money center banks are doing just fine. Take Wells Fargo (NYSE:WFC), for example.
The company announced its Q2 results last week. They were, in a word, tremendous. Net income soared from $3.1 billion to $4.9 billion. Earnings per share surged from 75 cents to $1.25 per share for the quarter. The bank’s return on equity (ROE)moved up 320 basis points to 11.4%. These were excellent results across the board.
For all the hand-wringing around the banks, most of the large ones are just fine. There is no deposit run. Lending demand remains strong. And people are still paying their mortgages and credit cards every month.
As for Wells Fargo specifically, earnings moved sharply higher as the firm is cleaning up a lot of its expenses tied to legacy legal obligations. The company has also turned on the share repurchase spigot, gobbling up 100 million shares of stock last quarter. All this adds up to rising earnings, an improving outlook, and a path to a sharply higher share price.
Realty Income (O)
Realty Income (NYSE:O) is a real estate investment trust (REIT) focused on triple-net leases. Investors appreciate the triple-net lease model because the tenant, rather than the landlord, pays for key costs such as maintenance, insurance, and property taxes.
Today, the company has more than 12,000 properties, mostly focused on retail properties. That might sound risky in the age of e-commerce. However, the majority of these are in defensive internet-resistant verticals such as food, pharmacies, or consumer services.
Realty Income is known as the “Monthly Dividend Company” as it has been paying its dividend monthly since the turn of the century. It is also a Dividend Aristocrat, having raised its dividend for at least 25 years in a row.
The firm has proven its business models through prior downturns such as 2001 and 2008. It faces challenges now with the changing retail landscape and rising interest rates. But investors are rewarded for that uncertainty with the stock selling now near 52-week lows. Shares currently yield 5.0%.
On the date of publication, Ian Bezek held a long position in WFC and VZ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
