You really don’t need much explanation regarding the allure of undervalued stocks. Just like seeing a buy-one-get-one (BOGO) free sale at your favorite retailer, we’re instinctively attracted to bargains. Especially during this period of stubbornly elevated prices, paying less than retail has its benefits.
In many ways, the same principle applies to undervalued stocks. To be clear, we’re not talking about merely cheap securities. Rather, by targeting enterprises that suffered a temporary setback, we can place wagers that they’ll eventually recover – and then some.
To make this list even more intriguing, I’m going to take undervalued stocks from three major indices: the benchmark S&P 500, the small-capitalization specialty Russell 2000 and the technology-focused Nasdaq 100. While the below entities might be lagging their underlying indices, they’re poised to outperform in 2024.
Newmont (NEM)
What it is: A stalwart in the mining industry, Newmont (NYSE:NEM) is the world’s largest gold mining corporation, according to its public profile. Also, its website states that NEM represents the only gold producer listed in the S&P 500 index. However, NEM is also badly lagging the benchmark, losing about 22% of equity value since the January opener.
Relevance: In contrast, the S&P 500 is up about 21% on a year-to-date basis. Therefore, NEM would have to quickly reverse course regarding its momentum. But that’s exactly what analysts have in mind. Currently, they rate shares as a consensus moderate buy with a $48.67 average price target. That implies about 25% upside potential. Further, the high-side target stands at $58, implying about 49% up.
Pros: True to the subject matter, NEM represents one of the undervalued stocks (albeit barely). Shares trade at forward earnings multiple of 10.61x, just below the sector median of 10.92x. Further, if the fear trade kicks in, NEM could soar to surprising heights.
Cons: Fundamentally, the gold-mining space has been volatile. Also, if the Federal Reserve decides to raise interest rates, NEM could suffer.
Ovintiv (OVV)
What it is: An independent petroleum company, Ovintiv (NYSE:OVV) cynically benefited from rising hydrocarbon demand. However, various geopolitical and economic forces have seen a disinflationary effect against the underlying sector. As a result, OVV gave up more than 11% of equity value since the beginning of the year.
Relevance: Although the underlying small-cap field tends to shoot higher during upcycles and post worrying red ink during downcycles, the Russell 2000 has only gained about 8% since the start of the year. Still, it’s obvious that OVV lags the index. Nevertheless, analysts peg shares as a consensus moderate buy with a $57.06 price target. That implies upside potential of around 37%.
Pros: What makes OVV so enticing is that it offers a legitimate case for undervalued stocks. Specifically, shares trade at forward earnings multiple of 4.44x, below the sector median of 7.59x. Further, the company’s three-year revenue growth rate clocks in at 23.3%, above the sector’s average of 10.7%.
Cons: Aside from the choppy nature of hydrocarbons, OVV is particularly exposed to geopolitical risks. As well, investors should closely monitor the Fed’s monetary policy.
Baidu (BIDU)
What it is: A multinational tech firm, Baidu (NASDAQ:BIDU) represents one of China’s powerhouse business enterprises. Specializing in internet-related services and products, Baidu has been aggressively pushing into the field of artificial intelligence. Given the sector’s growth ramp, BIDU makes for compelling speculation. However, it’s down about 5% YTD.
Relevance: Without question, BIDU lags the Nasdaq-100 – and glaringly so. Since the beginning of the year, the tech-centric index jumped more than 49%. That’s not an easy feat to duplicate, let alone beat. Nevertheless, that’s exactly what market experts are calling for with their strong buy consensus view. More to the point, analysts see shares hitting $170.41, implying 50% upside potential. Also, the high-side target lands at $215, projecting over 89% growth.
Pros: If you can handle the risk, BIDU represents one of the deeply undervalued stocks to consider. Right now, shares trade hands at a forward earnings multiple of 10.46x. In contrast, the sector median comes in at a loftier 16.48x.
Cons: While BIDU intrigues because of its relative discount, worries exist about China’s economic slowdown. Therefore, investors should approach cautiously.
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.
