With the major equity indices signaling the possibility of a slowdown – if not an outright downcycle – investors may be better served considering overlooked value stocks. At this moment, I like the idea of self-preservation, meaning that taking on hyped growth names may not be prudent.
To use a sports analogy, it’s possible we may be sitting on a late lead in a football game. Therefore, undervalued value stocks to buy offers the equivalent of a prevent defense. We’re not necessarily chasing the momentum-shifting hit or a key interception. Rather, we’re going to let the offense have some garbage yards and bleed out the clock.
No, it’s not a particularly exciting tactic. However, ahead of market uncertainties in the new year, we want to rack up as many victories as possible. Whether we get the “W” through superior clock management or throwing dimes on the field, a win is a win.
On that note, below are overlooked value stocks to add to your portfolio.
Overlooked Value Stocks: Cisco (CSCO)
In arguably most investors’ opinion, Cisco (NASDAQ:CSCO) is a boring idea. However, boring is good if it also translates to predictability. And that’s exactly what CSCO is. Again, it’s not going to win beauty contests. However, with a net margin of 22.13% and a return on equity (ROE) of 30.3%, Cisco consistently prints positive numbers on the bottom line.
Another factor I appreciate about Cisco is its acquisitive nature. Sure, it’s risky. However, the company recently made its largest ever acquisition by buying cybersecurity firm Splunk (NASDAQ:SPLK) for $28 billion in cash. Per CNBC, the decision deepens Cisco’s bet on security software. Given the overall damage that cyberattacks impose – against both individual users to large enterprises – I’d say it’s a reasonable wager.
It also makes a financial case for overlooked value stocks. Specifically, shares trade at only 11.26x free cash flow (FCF), lower than the sector median of 15.97x.
However, analysts seem hesitant about the aforementioned acquisition. It’s a consensus hold though the average price target lands at $59.23, implying over 13% upside.
British American Tobacco (BTI)
On the surface level, British American Tobacco (NYSE:BTI) seems a throwaway idea for undervalued value stocks to buy. Sure, it’s undervalued in the technical sense. Right now, shares trade at a trailing earnings multiple of 6.39x. Also, BTI features a forward earnings multiple of 6.33x. Both stats rank well below the respective median values for the underlying tobacco industry. But is that a good thing?
Study after study reveals that smoking prevalence worldwide has declined significantly. Therefore, it makes sense that BTI is one of the overlooked value stocks: it’s anachronistic and may possibly be a value trap. However, I’m going to offer the contrarian angle. Primarily, British American’s vaporizer (or “vapourizer” as I guess it’s called in the U.K.) products should continue to drive demand.
It’s a mature market but it’s predictable, generating consistent profitability and robust FCF. Further, the stress of rough economic times may have people using tobacco products for relief.
Analysts also rate BTI a hold but the average price target comes in at $35.50, implying 18% growth.
Overlooked Value Stocks: LyondellBasell Industries (LYB)
A multinational chemical company, LyondellBasell Industries (NYSE:LYB) certainly makes for a snooze-inducing market idea. But don’t get me wrong – I’m not casting aspersions. Given the everyday pertinence of the business, it’s an intriguing opportunity. Further, LYB returns only 7% since the beginning of the year. Right there, that makes for a case for overlooked value stocks.
To be fair, LyondellBasell saw revenue erosion in Q3. On a trailing-12-month (TTM) basis, sales comes in at $41.38 billion, down conspicuously from 2022’s haul of $50.45 billion. Therefore, it’s easy to criticize LYB as an idea for undervalued value stocks to buy. It appears it’s losing relevance. Nevertheless, the company is vital for key segments such as food safety, clean water access, healthcare and fuel efficiency.
By being patient with LYB, it will reward you with a forward yield of 5.56%. Also, the payout ratio isn’t outrageously high at 50.69%, allowing investors to sleep easier at night.
Also, analysts view LYB as a moderate buy, forecasting a $102.42 target (and thus implying 14% upside).
ConocoPhillips (COP)
As one of the biggest hydrocarbon companies, it’s difficult to characterize ConocoPhillips (NYSE:COP)as one of the overlooked value stocks. Please feel free to call me out on X. Nevertheless, it still deserves a look for investors seeking out underappreciated ideas. Since the beginning of the year, COP only gained a bit over 3%, which seems incredibly modest. After all, geopolitics alone should boost its upstream (exploration and production) business.
Admittedly, I’m at a disadvantage because at time of writing, the company is just about to release its third-quarter earnings report. Nevertheless, heading into the disclosure, sentiment was upbeat. For one thing, certain oil-producing nations extended their production cuts to the end of this year. Also, social normalization trends might translate to greater road traffic in the near future. This too should lift shares.
Also, COP makes a case for undervalued value stocks to buy with its price/earnings-to-growth (PEG) ratio of 0.45x. In contrast, the sector median lands at 0.85x.
Analysts peg COP a consensus strong buy with a $143 target, projecting almost 23% upside.
Overlooked Value Stocks: Pfizer (PFE)
Wading into the speculative portion of overlooked value stocks – you know you love it! – contrarians may want to give Pfizer (NYSE:PFE) a shot. For full disclosure, I’ve mentioned Pfizer before and unfortunately, it’s one of those clown act ideas thus far. However, I’m not stuck in the death spiral of the sunk cost fallacy per say. Rather, some analysts also anticipate a comeback effort materializing.
Of course, the 800-pound gorilla in the room is the Covid-19 vaccine. Nobody’s scared of the SARS-CoV-2 virus anymore. Therefore, Pfizer – as one of the key vaccine developers – suffered from missed sales estimates in Q3. Also, management stated that its diluted loss per share incurred a significant impact from a $5.6 billion non-cash inventory write-off. You guessed it: much of that inventory stemmed from unused does of its Covid treatment.
However, Pfizer CEO Albert Bourla expressed encouragement at Pfizer’s non-Covid products. As well, the company can leverage acumen for future innovations. Thus, PFE’s lowly forward multiple of 9.3x could be interesting. And analysts rate PFE as a moderate buy with a $39.33 target, seeking a 29% return.
Stellantis (STLA)
Regarding the topic of overlooked value stocks, a clear reason exists why investors avoided automaker Stellantis (NYSE:STLA). With the United Auto Workers (UAW) going on strike, the domestic legacy auto manufacturers suffered a heavy blow to momentum. After all, these entities focused heavily on electric vehicles in a bid to compete with Tesla (NASDAQ:TSLA).
Although a tentative deal was struck which should remove a headache for Stellantis, it still suffered from the labor dispute. Moreover, CNBC identified the big three Detroit automakers as losers in the deal. It also may extend a lifeline to Tesla, which has been losing market share. However, legacy automakers always have the option of pivoting to their combustion-powered vehicles depending on how the market responds.
Such flexibility could be important because rising EV inventory at dealerships indicate that even with sector-wide price cuts, consumers have challenges making the transition. Also, with STLA trading at 3.85x FCF, it’s a tempting proposition.
Lastly, analysts peg STLA a strong buy with a $25.28 target, implying over 33% upside.
Baidu (BIDU)
Easily one of the riskiest ideas for undervalued value stocks to buy, China’s Baidu (NASDAQ:BIDU) has seen better days. Since the start of the year, BIDU finds itself down nearly 12%. Even worse, the negative acceleration has been severe recently. For example, in the trailing one-month period, BIDU gave up a bit over 21% of equity value.
Much of the downturn stems from China’s fading economic performance. In particular, concerns exist about the world’s second-largest economy’s deteriorating housing market. Basically, if housing goes under, that could easily sink consumer sentiment. In turn, top Chinese companies could turn volatile as investors rush for the exits. And it wouldn’t bode well for other countries given the importance of Chinese consumption.
Still, it’s almost inevitable that the red ink will attract speculators. Currently, BIDU trades at a forward earnings multiple of 10.52X, favorably lower than 71.25% of its peers. Also, options flow data – which targets big block trades – shows that a projected floor may exist at $115 based on large volume of sold puts. Whatever the case, analysts rate BIDU a strong buy with a $180.16 target, implying nearly 72% growth.
On the date of publication, Josh Enomoto 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.
