With major stock markets reaching new highs in Q1, some investors are looking for stocks to buy to exploit the lack of “breadth”. A small number of large-cap stocks with significant weightings have propelled upward movement, while many stocks have underperformed despite a rising market. For recent gains to prove sustainable, breadth must broaden to include additional performers. This could be an opportunity to buy laggard stocks poised to join the high-flying club.
Analysts suggest signs of increasing market breadth, implying that underperforming stocks may start to accelerate. It has remained flat over the last three months despite rocketing indexes. This indicates some laggard stocks to buy, as they are expected to grow substantially with supportive economic indicators and anticipated Fed interest rate cuts.
One approach to identifying undervalued stocks to buy examines those stocks trading below their perceived value and having profitably withstood market fluctuations over recent months. With technology giants attracting attention, overlooked industries may offer compelling investments. The selection of three laggard stocks to buy trade in hydrocarbon, regional banking, and agriculture.
Apache Corp (APA)
Apache Corp (NASDAQ:APA) is the first of the three stocks to buy. APA is among the top five hydrocarbon exploration companies on the Fortune 500 list. The company operates internationally and has holdings in Egypt and the North Sea. However, approximately 68% of its 912 million barrels of equivalent (boe) proven reserves are in the United States.
Despite increasing oil prices and the company’s beating earnings, its stock price has declined year-to-date (YTD). This has resulted in a price-to-earnings (P/E) ratio of just 3.6 times, one of the lowest, if not the lowest, in the S&P 500. However, the oil and gas sector has a low P/E multiple, as investors remain cautious of climate change. Still, APA’s P/E ratio is less than half the P/E average of its competitors, at 10.8 times.
The hydrocarbon sector has appreciated by 17.2% this year, indicating APA has plenty of ground to make up relative to its peers. Analysts expect around 30% further upside, with an average target price of $41.22 per share.
PNC Financial Services (PNC)
The second pick of the stocks to buy is PNC Financial Services (NYSE:PNC). Despite the U.S. regional banking sector facing challenges in recent years and New York Community Bancorp (NYSE:NYCB) issues not helping restore market confidence, PNC remains behind its peers. And this is regardless of its size and national reach. In addition, its unrealized losses—the core driver of regional bank weakness previously—remain below average.
Despite its share price declining 5% YTD, resulting in a P/E of 11.6x, PNC performed well in Q4 due to the rally in Treasury markets. Its P/E remains less than half the benchmark S&P 500 current ratio of 28 times. The company also has a lower price/earnings-to-growth (PEG) ratio than the industry average, hovering around 1.14 times instead of 1.20. Analysts project the stock could appreciate to $163.35 per share, with none of the 29 analysts in coverage recommending selling shares.
FMC Corp (FMC)
The third and final examination relates to FMC Corporation (NYSE:FMC) to round up the list of laggard stocks to buy. FMC is an agriculture and crop chemical company that stands apart from the other two picks due to its 30% gain over the past month. However, its stock was trading at lower valuations before the recent surge. Investors were likely concerned about the company’s 30% drop in organic revenue last year, caused by adverse weather conditions in Latin America. Despite these two factors, FMC still trades at a sizeable discount when measured by its P/E multiple.
The company believes it has moved past that challenge and foresees a return to revenue growth this year. FMC appears to benefit from lower input costs, cost-cutting actions and a favorable product mix. It expects $50-$75 million in cost savings in 2024. Notably, the board seems optimistic about its cash flow, which would allow it to continue to pay its dividend, which is now at 3.6%. In addition, FMC’s P/E ratio of 5.8 times is barely above one-quarter of the average for its sector, which is 20x.
On the date of publication, Stavros Tousios 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.
