Despite multiple macroeconomic issues in the past year, the market looks to finally be turning back up as 2024 nears. In 2022 and 2023, unexpected downturns from the bear market, threats of an impending recession, and inflationary pressure brought down hundreds of growing companies. Like any value investor learning from Warren Buffet, one of the most critical factors when evaluating a stock comes back to its intrinsic valuation. All investors should always be continually monitoring their investments, ensuring they are purchasing a company for less than what it is worth to get a great deal. With 2024 expected to be a much more optimistic year, in this article, we’ll highlight seven undervalued stocks that all investors should consider getting in early on.
Undervalued Stocks: RTX Corporation (RTX)
RTX Corporation (NYSE:RTX) is a leading aerospace and defense company. Recently in 2023, RTX has suffered a large price decline, largely attributed to a combination of quality issues in its aircraft manufacturing business. Currently, its price sits at $73.13, with 21 Yahoo Finance analysts projecting an optimistic 1-year range between an average of $81.42 to a high of $103.73.
We support this optimistic sentiment and believe this is a perfect time for investors to add RTX at an undervalued price. With its buyback program and potential for increased defense spending due to escalating tensions in the Middle East and the continual fighting in Ukraine-Russia, we believe this company will be able to recover its slightly dampened FY estimates.
Taking a look at its financials, we see that RTX is undervalued at a P/E ratio of 14.54x, compared to its sector median of 16.02x. This valuation becomes even more attractive when looking at its historic one-year P/E mean of 27.09x. RTX’s Q2 2023 results were also optimistic, stabilizing and beating both EPS and revenue estimates. With news to also confirm their share buyback of $3B, investors should no doubt consider RTX as a discounted addition to their portfolio.
American Airlines Group Inc. (AAL)
American Airlines Group Inc. (NASDAQ:AAL) is one of the major players in the airline sector. It serves consumer and commercial clients through its vast route network, providing various travel and transportation services. The company is currently trading at $11.21, with Yahoo Finance analysts projecting a one-year price range of $8.00-$23.00, with an average target price of $15.14.
Airline stocks have been challenging for the past couple of years, mainly due to the COVID-19 pandemic and its subsequent repercussions. However, many airline companies are on an excellent pace to return to normal, pre-pandemic strength levels.
American Airlines presents an appealing investment opportunity with its P/E ratio of 2.91x, being significantly less than its industry peers average of 9.28x and its five-year historical average of 5.07x. The EPS of the company could also allow the company to be more attractive to several investors. It has a current EPS of 3.88. However, analysts from Yahoo Finance project the company to grow 368% during the current fiscal year and a growth estimate of 83.42% per annum over the next five years. With that in mind, we recommend American Airlines as among the top undervalued stocks with strong long-term potential.
Deutsche Bank Ag (DB)
Deutsche Bank Ag (NYSE:DB) is an influential figure in the banking and financial services industry as the largest bank in Germany. Yahoo Finance analysts estimate it will trade at an average one-year price of around $11.69.
The company’s financials clearly show growth at an efficient and sustainable rate. In the last 12 months, Deutsche Bank reported an impressive revenue of $28.2 billion, up ~22% from its revenue of $23 billion less than four years ago! EPS has also demonstrated consistent growth, increasing from -$2.71 at the close of 2019 to $2.42 as 2023 began.
When examining Deutsche Bank’s valuation, it is clear that the company is undervalued compared to the rest of the industry. Deutsche Bank’s P/E ratio currently stands at 4.19x, which, contrasted to the financial sector median P/E ratio of 7.91x, is almost 50% less than the industry average. Also, its P/S ratio of 0.73x TTM is a little less than 70% than that of the financial sector median, which stands at 2.15x.
With these stellar valuation ratios, DB further solidifies its place as an addition to any individual’s portfolio.
Delta Air Lines (DAL)
Delta Air Lines (NYSE:DAL) is a major presence in the airline industry as one of the largest and most influential carriers in the U.S. Yahoo Finance analysts estimate it will trade within a one-year price range of $43 – $77, averaging at around $53.94.
With Delta’s standing and weight in the transportation market, its low P/E and P/S ratios compared to the industry medians display it as likely being undervalued. While the industrial sector has a median P/E ratio TTM of 16.02x, Delta’s is 5.00x, a -69% difference from the sector. Similarly, for the P/S ratio, Delta’s is 0.36x TTM, while the sector’s is at 1.27x, meaning Delta’s P/S ratio was at a 72% decrease from the sector average.
Looking at its financials, we see that its revenue has increased around 20% in the last four years, from $47 million in 2019 to $55.7 million TTM. While COVID-19 played a large role in the company’s drop to an EPS of -$19.49 in 2020, it is Delta’s rise back to a value of $2.07 in 2022 that shows its adaptability and growth. Overall, Delta Airlines would be a great pick for anyone looking for undervalued stocks.
Clearfield, Inc (CLFD)
Clearfield (NASDAQ:CLFD) produces everything needed to conduct electricity efficiently, from resistors and inductors to their new fiber optics for wires. With more fiber technology being used in the future, Clearfield indeed has massive growth potential. In fact, four Yahoo Finance analysts predict the stock to trade with a range of $24 to $52 and an average of $45.
Clearfield’s newest product is the fiber optics cassette, which can single-handedly fix multiple wired connections and connect up to ten wires together, allowing for a considerable increase in productivity in the system. Integrating these innovative products into existing wired connections will increase the network speed significantly, giving them an edge over the competition.
Clearfield’s valuation is also relatively cheap, with a P/E ratio of 8.28x compared to the industry’s 14.78x and its five-year average of 19.16x. Additionally, in the past two years alone, its EPS and profits have grown significantly, as EPS grew 141% and profits grew 81%. With a historically discounted P/E ratio, steady growth, and new, innovative products coming out, this undervalued stock will surely have some explosive growth soon.
Take-Two Interactive Software, Inc. (TTWO)
Take-Two Interactive Software (NASDAQ:TTWO) is a leading developer, marketer, and publisher in the gaming industry. Yahoo Finance analysts estimate that this stock will trade within a one-year price range of $104-$171 with an average of $156.96. Its analyst estimate is 30% below its fair value estimate. That’s why we think it is one of the best-undervalued stocks.
Take-Two Interactive is the creator of the Grand Theft Auto series, the 2k games, and Red Dead Redemption, and is one of the biggest entertainment providers for consumers. Despite TTWO’s recent costly acquisition of Zynga, I believe this partnership with a provider of free-to-play games will lead to an overall net gain in the long term.
According to a Wall Street analyst, TTWO is expected to hit a price of US$157, putting it 30% below its fair value estimate. With a historically sufficient cash runaway and likely stabilization in 2024, I highly recommend TTWO to any investor looking for a massive return on their discounted investment.
Novartis AG (NVS)
Novartis AG (NYSE:NVS) is a Swiss pharmaceutical manufacturer with a long history of innovative drugs. The share price is up over 28% in the last year and currently sits at $94.69. The stock has an average 1-year price target of $112.75, according to 4 Yahoo finance analysts.
Its breast cancer drug Kisqali was found to significantly cut the risk of recurrence and has been approved to treat hormone-driven breast cancer. With this new approval and success, it is likely to be a new drug, boosting its revenue in the future. In terms of valuation, its current P/E sits at 14.26x compared to the sector median of 17.16x, a staggering difference of over 16%. With EPS expected to grow at an average of just over 6% for the next few years, Novartis presents investors with a promising investment with plenty of upside. Thus, it is one of the best undervalued stocks, in our opinion.
On the date of publication, Ian Hartana and Vayun Chugh 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.
