As we head into Fall, it’s a good time for investors to rebuild their watch list for the coming months. Despite the recent volatility, quality companies are still trading at reasonable prices, and many such companies have solid fundamentals.
The key is focusing on businesses that are undervalued and have significant growth potential. Investor spirits tend to rise heading into the Fall, renewing interest in stocks that offer both value and growth potential.
Thus, now is the moment to identify stocks poised to outperform through 2023. I’ll highlight seven stocks across different sectors that need to be on your radar this Fall. From proven blue chips to emerging disruptors with significant upside, these picks check the boxes of stability, growth drivers, and discounted valuations to deliver solid returns over the next 6-12 months.
Whether building a core portfolio or hunting for opportunistic plays, I believe these stocks deserve a spot on your shortlist. The logic behind each is straightforward; their upside outweighs varying levels of risk. With that in mind, consider the following seven stocks.
Opera Limited (OPRA)
Opera (NASDAQ:OPRA) is an emerging browser company uniquely positioned to capitalize on two of tech’s hottest trends – the shift to mobile, and AI integration. The company owns a suite of AI-enhanced mobile browsers boasting over 316 million monthly active users globally.
Opera’s growth strategy centers on expanding its user base in Western markets, where monetization rates are significantly higher. The company has delivered phenomenal results in these markets, with revenue growth of more than 20% annually. At the same time, Opera’s stock has fallen from highs of $28 in July to around $13 currently, opening up an attractive buying opportunity for value investors.
With strong momentum in adding higher-value Western users, Opera looks poised to continue its rapid growth. The company is also integrating cutting-edge AI technology into its mobile browsers before its competitors, giving the company a first-mover advantage in this potentially lucrative space. Opera recently launched the AI-powered Opera One desktop browser to rave reviews.
Opera offers excellent upside potential at current levels, with a price-to-earnings ratio at just 17-times. Analysts expect the company to continue growing its top line around 15% annually for the foreseeable future, hinting at 63% upside potential for OPRA stock over the next year.
Alibaba (BABA)
Chinese e-commerce giant Alibaba (NYSE:BABA) has been battered by a series of headwinds, with its stock plunging over 70% from all-time highs. However, the negativity with BABA stock looks overdone. Alibaba boasts unmatched scale and branding in China through juggernauts like Taobao and Tmall. Its logistics arm, Cainiao, provides enormous competitive advantages in a market with over 1 billion consumers.
In previous years, Alibaba underwent a major management shakeup, streamlining operations under new leadership with founder Jack Ma stepping down. The company is now refocusing on revitalizing e-commerce and cloud computing growth, its core competencies. Alibaba is also investing heavily in AI initiatives to drive the next stage of growth in areas like shopping and enterprise services.
Meanwhile, China has instituted fresh stimulus measures to bolster its economy, which should provide a tailwind for BABA stock. Alibaba generates over $29 billion in annual free cash flow, giving the company plenty of financial strength to weather near-term headwinds. I believe the Chinese giant is too cheap to ignore right now.
Sure, the Chinese economy might be somewhat weak right now, but I don’t expect this weakness to last. Accordingly, the $142 consensus price target implies 62% upside over the next year.
AT&T (T)
Legacy telecom stalwart AT&T (NYSE:T) has been dragged down to bargain basement prices not seen since the early 1980s. Pummeled by cord-cutting pressures and the costly 5G network rollout, the stock now trades at just 6.2-times forward earnings, with a hefty 7.2% dividend yield. I don’t think this dividend will last too long, given the company’s cost-cutting actions. However, AT&T still boasts valuable assets and growth drivers, making it a strong turnaround play.
The company retains a wireless subscriber base of 222 million, along with 15.4 million broadband connections. AT&T is aggressively expanding its fiber optic network, enabling the company to take broadband market share from cable. The company also continues streamlining operations and paying down debt from past acquisitions.
While AT&T does have substantial debt, its strong free cash flows provide coverage to sustain its dividend and invest in 5G. With interest rates set to decline in coming years, refinancing costs for AT&T’s debt load will ease. Indeed, T stock may take years to return to its previous peaks, but investors can collect a juicy dividend yield while waiting for a long-term recovery in this name. This telecom giant is simply too cheap to pass up on right now, in my view.
PNC Financial Services (PNC)
PNC Financial (NYSE:PNC) operates one of America’s most extensive banking franchises, with more than 2,500 branches spread across 28 states. However, the stock has tumbled recently to around $125 per share, nearly matching its pandemic lows back in 2020. I think this presents a compelling buying opportunity.
While economic uncertainties have weighed on bank stocks, these fears are overblown in PNC’s case. The company has limited exposure to risky sectors and maintains strong underwriting standards. Notably, PNC’s balance sheet is rock-solid, recently receiving the minimum 2.5% stress capital buffer from the Fed.
With over $558 billion in assets, PNC boasts tremendous scale advantages that enhance its profitability. The bank continues taking market share, particularly in fast-growing regions like the Southeast. Once the economy stabilizes, PNC is capable of returning to strong earnings growth. However, shares trade at just 10-times forward earnings, far below historical multiples.
With that in mind, the Fall months present a prime opening to grab these promising stocks while they remain undiscovered and attractively priced. Their upside potential heading into 2023 is too significant to ignore.
Dollar General (DG)
Dollar General (NYSE:DG) stock has taken a beating in 2023, plunging over 53% year-to-date. The company has faced execution issues, including challenges ramping up labor, managing inventory, and combating higher shrinkage levels. This has weighed on sales and profits, with earnings per share declining 28.5% in Q2.
However, the negativity around Dollar General looks overblown. This is a high-quality business with a leading position in the attractive dollar store industry. Dollar stores stand to benefit as the consumer comes under pressure from factors like inflation and rising interest rates. Value and convenience become more important, playing right into Dollar General’s wheelhouse. Despite the company’s recent operational stumbles, Dollar General still grew net sales by 4% in Q2, driven by unit share gains across categories. Management is keenly focused on improving execution by adding labor hours, optimizing inventory, and upgrading technology and processes.
While this creates near-term pressure, it will better-position Dollar General for the long-run. The company can regain its track record of consistent mid-single-digit comparable sales growth and double-digit earnings per share gains once execution normalizes.
Right now, Dollar General trades at just 14.4-times forward earnings, far below its historical average of roughly 20-times. This is an excellent entry point for a high-quality business that offers massive upside potential once execution recovers. Investors should take advantage of Dollar General’s plunge to gain exposure to a long-term winner.
Advance Auto Parts (AAP)
Advance Auto Parts (NYSE:AAP) operates in the large, fragmented, $448 billion automotive aftermarket parts industry. This market benefits from consistent demand drivers, including the aging of the average car on the road, and rising vehicle miles driven. The average vehicle age now exceeds 12.5 years, an all-time high.
This bodes well for demand at auto parts retailers like Advance Auto Parts. Maintenance and repair costs rise as vehicles age, driving more spending on parts. At the same time, stretched consumer budgets will lead more people to repair rather than replace their aging vehicles, further lifting parts demand.
Advance Auto Parts is executing initiatives to expand margins and gain a share in this growing market. The company is adding new higher-margin private label brands, ramping up its commercial program, and optimizing its supply chain and inventory management.
While inflationary pressures have temporarily weighed on sales and margins this year, Advance Auto Parts has levers to expand profits over time. The company sees a long runway for new store growth in under-penetrated markets, and significant potential to improve stagnant same-store sales growth. Despite the bearish sentiment on Wall Street, I believe this company is poised to recover. Gurufocus’ model puts the fair price of the stock at $210.
Arhaus (ARHS)
The furniture industry has faced significant challenges from factors like supply chain disruptions and inflationary pressures. However, upscale furniture purveyors like Arhaus (NASDAQ:ARHS) have proven more resilient amidst the challenging backdrop.
Arhaus sells premium artisan-crafted furniture priced in the four-digit-plus range, on average. The company focuses on affluent consumers in the upper-middle and above-income brackets. Despite inflationary pressures, these customers have maintained their spending.
That has shown up in Arhaus’ impressive recent results. In Q2, the company grew net revenue by 2.2% and adjusted EBITDA by 5% year-over-year. Thus, I believe Arhaus is well positioned to capitalize on the strength among affluent consumers. The company is rapidly expanding its showroom footprint, aiming to add five to seven new showrooms per year. Its omnichannel model enables seamless integration between e-commerce and physical showrooms.
Strong demand also has Arhaus on pace to generate over $1.27 billion in net revenue in 2023. That said, the U.S. premium home furnishings market offers an additional $100 billion revenue opportunity. With affluent consumers poised to keep spending on furnishing their homes, Arhaus has a long growth runway ahead. I believe the stock deserves a much more premium valuation, and the average analyst price target at $14.60 implies some pretty impressive 50%-plus upside potential over the next year.
On the date of publication, Omor Ibne Ehsan 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.
