Although the stock market is near an all-time high, there are still plenty of stocks that are underperforming. Lots of great companies have not participated in the bull market over the past 18 months and seen their share price slide deep into the red. This presents an opportunity for astute investors who take a long-term view and have the wherewithal to snap up shares when they are on sale, riding them to future gains.
The benchmark S&P 500 might have had its best first quarter to a year since 2019, but literally a third of the stocks listed on the exchange are in the red currently. While some of those names are long-term underachievers and bad investments, many are down due to a one-off earnings miss, disappointing guidance, or poor sentiment on the part of analysts and investors. The selloff has lowered valuations to the point where many stocks now look cheap and poised for a comeback. Here are the seven most undervalued sleeper stocks to buy in April 2024.
Tesla (TSLA)
It’s not without risk, but down 33% on the year and trading at $165 per share, the stock of electric vehicle maker Tesla (NASDAQ:TSLA) is starting to look intriguing if not undervalued. TSLA stock is sliding towards its 52-week low, is the worst performer in the S&P 500 index, and currently trades at 38 times future earnings estimates, its lowest valuation since before the Covid-19 pandemic began in 2020.
Of course, there’s a reason for the stock’s decrease. Tesla just released its latest delivery figures that show its global sales continuing to decline. The company published a first-quarter 2024 report that showed its worldwide deliveries totaled 386,810, down 8.5% from a year earlier. At the same time, Tesla also announced that it’s raising prices for all versions of its Model Y electric vehicles in the U.S. by $1,000, a move that’s unlikely to spur demand.
Still, how low can TSLA stock go before it’s time to bottom fish the shares?
United Parcel Service (UPS)
Now might be time to buy-the-dip in United Parcel Service (NYSE:UPS) stock. The delivery and logistics giant’s share price is down 23% over the last 12 months, including a 6% decline in 2024. UPS stock currently trades at 19 times future earnings estimates and offers shareholders a quarterly dividend of $1.63 per share, for a yield of 4.37%. Best of all, things are looking up at United Parcel Service.
While the company struggled with a drop-off in shipments after the pandemic surge ended, it is taking steps to shore up its business. UPS just struck a deal to become the primary air cargo provider for the U.S. Postal Service, replacing rival Federal Express (NYSE:FDX). FedEx previously held the contract with the U.S. Postal Service for 22 years and earned about $2 billion in annual revenues from the deal. Now that business shifts to UPS, which should give its earnings a boost.
Home Depot (HD)
Home Depot (NYSE:HD) hasn’t set the world on fire in recent years. HD stock continues to trail the broader market, having gained 6% in this year’s first quarter compared to an 11% increase in the benchmark S&P 500 index. But with the economy remaining strong and lower interest rates expected to spur housing demand, now might be the time to take a position in the home improvement retailer. HD stock is trading at 24 times future earnings forecasts and offers a quarterly dividend of $2.25 a share for a yield of 2.46%.
Home Depot also just announced a blockbuster acquisition. The company is buying privately held SRS Distribution for $18.25 billion as it bets on future growth coming from sales to professional contractors. Management has said that its sales growth is being driven by contractors, roofers, and other home professionals. The SRS Distribution acquisition is expected to close by the end of January 2025. The purchase is the largest in Home Depot’s history and should increases its total addressable market by $50 billion.
Home Depot is also opening new distribution centers across the U.S. and Canada that stock large amounts of items that professionals need, such as lumber and shingles, and delivering building materials directly to construction sites.
McDonald’s (MCD)
The stock of fast food giant McDonald’s (NYSE:MCD) remains in a funk. Year-to-date, MCD stock is down 6% and badly lagging the market. The decline is mainly due to concerns about a global slowdown in sales and worries that the new class of weight loss drugs will lead people to eat fewer cheeseburgers and fries. However, those issues run against McDonald’s earnings, which remain strong, and the company’s aggressive expansion efforts and menu diversification.
The Golden Arches just announced a new partnership with Krispy Kreme (NASDAQ:DNUT) that will see the popular doughnuts sold at McDonald’s 13,500 outlets across America. While that news sent DNUT stock up more than 20% in a day, it has done nothing to help MCD stock. Neither have plans announced last December to open 9,000 new McDonald’s restaurant locations worldwide and add 100 million members to its loyalty rewards program by 2027.
Trading at 24 times future earnings estimates and with a quarterly dividend of $1.67 a share, giving it a yield of 2.40%, McDonald’s is a sleeper stock that’s worth considering.
Adobe (ADBE)
For a tech stock that’s really hit the skids, look to Adobe (NASDAQ:ADBE). The software company behind popular products such as Photoshop and Illustrator has seen its share price drop 14% this year, placing it among the worst performers in the S&P 500 index and at the very back of technology stocks. ADBE stock has been in freefall ever since OpenAI introduced an artificial intelligence (AI) application that can generate images and videos similar to Adobe’s software products.
However, the situation at Adobe isn’t as grim as it’s being made out to be and there now looks to be an opportunity to buy the company’s stock on sale. Adobe recently reported strong financial results, announcing earnings per share (EPS) of $4.48 versus $4.38 that was expected among analysts. Revenue came in at $5.18 billion compared to $5.14 billion that was anticipated. Sales were up 11% from a year earlier.
Adobe also canceled its planned $20 billion acquisition of design software start-up Figma, which many analysts had criticized as too costly. And the company continues to introduce its own AI products, including a just announced assistant for its Reader and Acrobat apps.
Darden Restaurants (DRI)
Darden Restaurants‘ (NYSE:DRI) share price has been soft, making the stock look undervalued at current levels. So far this year, the company that owns franchise restaurants such as the Olive Garden and LongHorn Steakhouse, has seen its share price rise only 2%. In the last 12 months, DRI stock has gained 8% compared to a 26% increase in the S&P 500 index. The weak share price appreciation comes despite the company managing to claw itself out of the doldrums it experienced during the pandemic.
In late March, Darden reported mixed financial results, with its overall same-store sales decreasing 1% in the final quarter of 2023 compared to a year earlier. Almost all of the company’s restaurant reported same-store sales declines in the period. However, hope arrives with the acquisition of Ruth’s Chris Steak House, which provides Darden with 53 new restaurant locations that should give its sales a lift moving forward. The company provided conservative guidance, which leaves room for upside surprises over the rest of this year.
eBay (EBAY)
After years of declining returns, there suddenly looks to be life in shares of e-commerce company eBay (NASDAQ:EBAY). EBAY stock is up 18% year-to-date. However, despite the big run, there still appears to be an opportunity to buy shares. Currently, eBay’s stock is trading 36% below the all-time high it reached in 2021 at the height of the pandemic rally. Trading at just nine times future earnings, EBAY stock looks undervalued, especially for a technology company of its size. And the shares pay a quarterly dividend of 27 cents per share for a yield of 2%.
Other reasons to like EBAY stock are that the company announced in February that it is raising its dividend payment to shareholders by 8% and undertaking a new $2 billion stock buyback program. The dividend hike and stock buyback program were announced alongside quarterly results that beat Wall Street forecasts, and came a month after the company announced plans to eliminate 9% of its workforce, or about 1,000 full-time employees, as it seeks to control costs and lower expenses.
On the date of publication, Joel Baglole 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.
