After enduring a brutal sell-off in September and October, investors are enjoying a more enjoyable start to November. The S&P 500 closed in the green for five consecutive days for the first time in two years. This is bringing some money off the sidelines which means the hunt is on for undervalued stocks.
What’s changed? For starters, the Federal Reserve is confirming that it is close to ending its campaign of hiking interest rates. That doesn’t necessarily mean that interest rates will be going down anytime soon, but it’s having an impact on the bond markets, which is making equities more attractive.
Does the rally have staying power? Many analysts believe that it does, at least through the end of the year. If that’s so, it becomes a stock picker’s market.
I found these undervalued stocks using a stock screener and looking for growth stocks with a low price-to-earnings (P/E) ratio. While not a perfect, nor standalone, metric, the P/E ratio is widely accepted as one way of determining if a stock is properly valued.
Extreme Networks (EXTR)
Extreme Networks (NASDAQ:EXTR) focuses on the design, development, and manufacturing of wired and wireless network infrastructure. In addition, it delivers cloud-based networking solutions that will be critical as companies look to harvest data to leverage artificial intelligence (AI).
However, with a market cap of just over $2 billion as of this writing, EXTR stock is flying under the radar of many investors. The stock is down 44% in the last three months as tech stocks have fallen out of favor. That’s put the stock down near its 52-week low, and it’s trading at 24x earnings, which isn’t outrageous for a stock in the technology sector.
In its most recent earnings report delivered November 1, Extreme Networks delivered another quarter of revenue and earnings that were higher year-over-year (YOY). And, the company continues to win contracts that will make this revenue something investors can count on for years to come.
Solo Brands (DTC)
I’ll admit to being a little surprised to see Solo Brands (NYSE:DTC) on a list of undervalued stocks. The direct-to-consumer company offers an array of products geared toward an outdoor living lifestyle. Solo Brands went public in late 2021. This was after the company’s products became enormously popular in 2020 and 2021 as consumers were looking to spend time outdoors.
But since going public, DTC stock has been on an almost uninterrupted downward trend. As of this writing, Solo Brands trades as a penny stock.
There’s some reason for the decline. In the face of tough comparisons, not to mention a stressed consumer, revenue and earnings are lower YoY. However, if the analysts are right, the sell-off looks overdone.
Analysts are projecting a 43% increase in earnings in the next 12 months. They’re even more optimistic about the DTC stock price which they project could rise 120% in the next 12 to 18 months. That means it won’t be a penny stock for long.
Array Technologies (ARRY)
The last of the undervalued stocks on this list is Array Technologies (NASDAQ:ARRY). Array specializes in solar tracking solutions that maximize the efficiency and output of solar panels by adjusting their orientation to follow the sun.
Inflation and interest rates have made 2023 a brutal year for solar stocks. But the International Energy Agency (IEA) projects the solar photovoltaic (PV) market to account for 22% of global power capacity by 2027.
Prior to the recent market correction, ARRY stock was down 11% in 2023. And the stock does have a rather unsightly P/E ratio of 35x earnings. Nevertheless, the forward P/E ratio is a much more appealing 19x.
The key is the likelihood of ARRY delivering on estimates of earnings growing by 40% in the next year. If it does, it’s not hard to believe that ARRY stock could have the 59% upside that analysts are forecasting.
On the date of publication, Chris Markoch 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.
