Finding undervalued stocks in a volatile market can be challenging, but also rewarding. Some stocks may trade below their fair value due to various factors, such as market sentiment, industry trends or company-specific issues. However, if these stocks have solid fundamentals and growth potential, they may offer attractive returns for investors who are willing to take some risk. In this article, we will discuss three undervalued under-$20 stocks that have strong growth prospects.
Kyndryl Holdings (KD)
Kyndryl Holdings (NYSE:KD) is a global IT infrastructure services provider that was spun off from IBM’s (NYSE:IBM) infrastructure services business in November 2021. The company’s prior relationship with technology sector behemoth IBM allowed it to specialize in offering a range of services. These include cloud migration, data center management, network optimization, cybersecurity and digital transformation.
Kyndryl is undervalued from a profitability perspective. Currently, the IT infrastructure services company trades at 2.9x forward EBITDA, which is even lower than IBM’s 11.3 times forward EBITDA. The technology services sector has had a tough time this year in terms of acquiring new clients and growing revenue. Both have affected Kyndryl. However, the macroeconomic environment is likely to improve in the near and medium-term, which could spur Kyndryl’s top-line growth figures. With a positive second quarter report that saw Kyndryl’s net loss decrease significantly, the company could be on a steady path towards profitable growth.
ZIM Integrated Shipping Services (ZIM)
ZIM Integrated Shipping Services (NYSE:ZIM) is a company I mentioned in a piece written in July when containerized shipping rates were still hitting new lows. However, as higher oil prices and an ongoing pileup at the Panama Canal place upward pressure on shipping spot-rates, now may be the good moment to revisit the Israeli shipping giant. ZIM provides door-to-door and port-to-port transportation services for various types of customers. The company derives a significant portion of revenue from spot contracts, which would allow the shipping company to capture higher margins as shipping rates go up. For those who doubt ZIM’s ability to be nimble and take full advantage of elevated shipping spot-rates, I’d advise them to look at the shipping company’s 2022 and 2021 earnings report. Here, it posted $12.5 billion and 10.1 billion sales figures, respectively.
ZIM’s shares have gotten beat up in 2023 due to slowing growth, again related the shipping spot-market. This included the loss of its juicy dividend. ZIM still trades at an attractive valuation with a forward-looking enterprise-to-EBITDA ratio of three to four times. For investors looking to increase their exposure to the shipping space, ZIM will have to be among their choices.
Weave Communications (WEAV)
Weave Communications (NYSE:WEAV) is an end-to-end communications platform for small and medium-sized businesses (SMBs). The cloud-based software company provides solutions for small businesses to communicate with their customers via phone, text, email, chat and video. Moreover, integrated into Weave’s platform are features such as online scheduling, payment processing, marketing automation and customer relationship management.
Though Weave is not yet net income positive, the communications platform has made serious strides to improve bottom-line profitability. From 2021 to 2022, Weave was able to compress its net loss margins from 51.7% to 49.7%. Furthermore, the company has continued delivering strong results in 2023. Weave’s shares trade at 3.3 times forward sales, which is relatively cheap for a tech company not yet generating net income. As the global economy moves away from high inflation and economic stagnation, Weave should continue to benefit from the growing SMB end-market. This stock and the others mentioned all earn their spot on our list of undervalued under-$20 stocks.
On the date of publication, Tyrik Torres 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
