When it comes to finding the best value stocks to buy, sometimes you have to go against the grain. That is, dive into stocks that have fallen out of favor with the market, to assess whether investor sentiment is on the money, or an overreaction.
A good example is with value stocks that are trading at or near their 52-week lows. Typically, a stock is hitting new lows for a good reason. For instance, macro and/or company-specific headwinds are leading to poor fiscal performance. Potential risks that may affect future performance can be another reason shares are selling off.
However, if you take a close enough look at each name, you can separate the bona fide bargains from the falling knives and the value traps. These seven value stocks meet the criteria of undervalued stocks to buy near their 52-week lows.
Canadian Solar (CSIQ)
Canadian Solar (NASDAQ:CSIQ) can be described as being suspiciously cheap. After all, shares in this solar system builder trade at a super-low 5.94 times forward. Surely this due to the prospect of earnings falling off a cliff next year, right?
Sort of. Per analyst consensus, earnings are expected to rise by more than 30% next year, from $3.02 to $3.93 per share.
However, there is great uncertainty about future results. This is due to continued fears of a severe solar industry downturn. CSIQ stock is not the only solar name trading at a rock-bottom price.
However, if you’re optimistic about the solar sector, Canadian Solar may be the best way to play it. Besides reporting less bad than feared results last quarter, at the start of this year Canadian Solar’s Recurrent Energy unit received a $500 million investment from BlackRock (NYSE:BLK).
Diana Shipping (DSX)
Diana Shipping (NYSE:DSX) owns a fleet of dry bulk cargo ships. DSX trades at 10 times forward earnings with a 10.42% dividend yield. As I pointed out previously, maritime stocks typically trade at low valuations.
This is due to the highly cyclical nature of the business. However, the worst may be priced in. Declining charter rates have already affected fiscal results.
Diana has already cut its dividend by 50%. The 10.42% referenced above is the post-cut forward yield.
As dry bulk charter demand normalizes, Diana is poised to experience a big earnings recovery in 2025. Consensus calls for earnings per share of 68 cents. Not too shabby, given that DSX trades for just under $3 per share.
Gerdau (GGB)
Brazil-based Gerdau (NYSE:GGB) is a leading global producer of steel and semifinished steel products. Soft global demand for steel has weighed on Gerdau’s performance.
The company’s annual earnings have declined heavily since 2021. That year, earnings came in at $1.20 per share.
This year, analyst forecasts call for earnings of just 48 cents per share. In 2025, this figure may go up only modestly, to 53 cents per share. So, as this downturn persists, what’s the potential upshot when it comes to buying GGB stock today?
Trading for only 8.9 times forward earnings, investors can get in what’s a fair price for a basic materials stock. From there, they can get paid why they wait, via the stock’s 4.75% dividend.
As demand in key markets like automotive steel (75% of Gerdau’s business) improves, an earnings rebound could end being far stronger than currently anticipated.
Gilead Sciences (GILD)
Among the top value stocks to buy, the one you’re likely most familiar with is Gilead Sciences (NASDAQ:GILD).
The big pharma firm is best known for its Veklury Covid-19 treatment. Veklury sales provided a shot in the arm to Gilead’s performance during 2021.
Post-pandemic, however, Gilead’s fiscal performance has flatlined. The company reported declining earnings in 2022. During 2023, earnings bounced back, but only partially compared to 2021. However, thanks to booming non-Veklury product sales, earnings could surge in 2024.
Gilead’s outlook calls for 2024 non-GAAP earnings of as much as $7.25 per share. Compare that to 2023’s non-GAAP earnings figure of $4.62 per share.
With GILD stock trading for only 10 times this forecast, hitting it could drive a big rerating. As InvestorPlace’s Josh Enomoto pointed out earlier this month, the median valuation for big pharma stocks is nearly 15 times forward earnings.
Hamilton Insurance Group (HG)
It’s par for the course for insurance companies to trade at a low price-to-earnings ratio. Hence, the forward valuation of Hamilton Insurance Group (NYSE:HG) is not surprising. Earnings for specialty insurers can be quite volatile.
However, the valuation of HG stock, which went public last November, may be overly accounting for risk and volatility. At current prices, shares trade for only 4.8 times forward earnings. This comes despite this Bermuda-based insurer continuing to report strong results.
As InvestorPlace earnings reported on March 6, Hamilton’s earnings per share last quarter came in at $1.15. This handily beat forecasts calling for earnings of 65 cents per share. That’s not all.
As two sell-side analysts argued shortly after HG’s November IPO, favorable market conditions and a portfolio of risks underwritten during a time of pricing power bode well for future results.
Ingles Markets (IMKTA)
Ingles Markets (NASDAQ:IMKTA) operates supermarkets in the southeastern United States. IMKTA fits well into the “undervalued for a reason” category.
As Seeking Alpha commentator Greathouse Research recently argued, Ingles faces risks like low margins and high competition. Sales growth has also been weak.
Yet while these factors perhaps warrant a discounted valuation, this has perhaps been overdone with IMKTA stock. Shares trade for only 7.8 times forward earnings. Slight improvements to results could drive a significant rerating.
Shares also trade a slight discount to tangible book value. Better yet, this book value may be understated. Ingles focuses on owning rather than leasing its locations.
As a result, the company owns 5.7 million square feet of leasable retail space. Monetizing this portfolio could also help to unlock value. With these positives in mind, IMKTA is among the best value stocks to buy.
Vale (VALE)
Vale (NYSE:VALE) is a Brazil-based basic materials company. While its main business is iron ore, Vale has also been positioning itself as a major global purveyor of what it calls “energy transition metals.”
Namely, key metals used in EV battery production, like nickel and copper. Weak iron ore demand and diminished excitement about the EV revolution have depressed VALE stock since early 2023. Shares trade for just 4.6 times forward earnings.
While Vale could continue to struggle in the near-term, long-term trends point to an eventual recovery. Iron ore demand will normalize.
As EV demand gets back into the fast lane, Vale’s energy transition metals business stands to become a greater contributor to the bottom line. Upside may be substantial for this $12 per share stock. In the past, VALE has traded at prices north of $20 per share.
On the date of publication, Thomas Niel did not hold (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.
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