Finding undervalued stocks in today’s market can be like searching for a needle in a haystack. With stocks regularly hitting new highs, it seems everything has already been bid up to nosebleed valuations. Determining a stock’s fair value requires art as much as science – and predicting the unpredictable whims of Mr. Market is a fool’s errand.
However, by taking a long-term view and focusing on fundamentals, it’s possible to identify stocks trading at tempting discounts. For investors seeking market-trouncing returns, these undervalued stocks could supercharge portfolio performance. At the same time, their beaten-down prices provide a margin of safety that adds ballast in stormy seas. As investing legends like Warren Buffett and Benjamin Graham preached, buying high-quality companies at bargain prices is one of the surest paths to wealth creation.
With that in mind, here are seven undervalued stocks trading under $20 to look into:
Undervalued Stocks: Qurate Retail (QRTEA)
Qurate Retail Group (NASDAQ:QRTEA) specializes in video commerce and advertising across various platforms. We’ve been witnessing a seismic shift in how digital advertising is executed as the world transitions away from televisions to mobile and computer screens. This explains why companies have dumped substantial amounts of money into the internet-driven digital realm. Firms like Qurate Retail stand out in this space.
What differentiates Qurate Retail is its focus on live shows featuring product demonstrations and exclusive sales to entice customers to purchase items. Management has also expanded the business into mobile apps and online commerce to keep the company relevant in today’s marketplace.
However, Qurate Retail has faced immense pressure in recent years, as evidenced by the admittedly ugly stock chart. I believe a turnaround is brewing though, and getting in now could easily generate multibagger returns in the coming months or over the next few years if this turnaround proves successful.
The stock has plunged 93% over the past five years, but the bleeding has slowed and shares have traded sideways for over a year near $1. The primary problem is the $7.3 billion debt load causing substantial interest payments due to rate hikes, leading to rapid balance sheet erosion in recent years. Revenue declines due to scaled-back expansion have also impacted the top line, but helped stabilize the situation by improving profits. Losses are currently not at critical levels, and analysts actually expect EPS of 66 cents for 2024, putting the forward price-to-earnings ratio at just 1.7x. The stock also trades at 0.04x forward sales. I believe once rates inevitably decline, the company would be able to power out of the storm with massive cash flow that can then fund further top-line growth.
The Goodyear Tire & Rubber Company (GT)
The Goodyear Tire & Rubber Company (NASDAQ:GT) is a global leader in tire and rubber product manufacturing, operating across various regions worldwide. Their primary business involves developing, producing, distributing, and selling tires for diverse applications. Like many auto-related firms, Goodyear has faced challenges in recent years. While not as distressed as QRTEA, Goodyear faces headwinds nonetheless. However, I believe this stock is also gradually recovering and can generate multibagger gains moving forward.
Goodyear is deleveraging its balance sheet, which has $8.65 billion in debt against just $902 million in cash. Still, the company is keeping losses manageable despite substantial interest payments and rate hikes depressing car sales and the broader tire industry. Analysts foresee massive margin expansion in coming years. EPS is projected at $1.24 for 2024, equating to a forward P/E of just 10x. EPS is expected to nearly double from 2024 to 2026. Revenue is also projected to stop declining in 2025 and resume modest but steady growth. I’m focused on margins now. Once rate cuts commence, I expect Goodyear’s business to make a rapid turnaround.
StoneCo (STNE)
StoneCo (NASDAQ:STNE) is a Brazilian fintech company (operates more like a bank) that boasts solid top-line growth, unlike the previous two turnaround plays. Revenue is expected to climb from $2.6 billion in 2024 to $4 billion in 2027, with accelerating growth, plus 20% average annual EPS expansion over the same period. Although the stock sits 82% off its 2021 peak, it has traded sideways for nearly two and a half years, an ideal setup for a discounted fintech stock at just 13x forward earnings. Fintech stocks broadly face pressure amid an unattractive financial sector, but I foresee improvement in the coming years as the economy normalizes.
Notably, Brazil has been more successful with rate hikes and cuts, responding to inflation earlier. Ongoing rate cuts provide tailwinds, with the business already recovering. The guidance calls for a 31% net income CAGR from 2024-2027. This is along with a staggering 90% credit portfolio CAGR. I believe the higher profits will fund expanding growth.
Revenue growth is far below the triple-digit rates seen just two years ago. However, rekindling 30%+ annual growth could prompt a major rerating. With $2.5 billion in cash against $1.1 billion in debt, StoneCo has ample capital to fund this growth when conditions allow. Thus, it is one of the must undervalued stocks, in my opinion.
PagSeguro (PAGS)
PagSeguro (NYSE:PAGS) is another Brazilian fintech playing in many developing countries with immense potential for fintech growth. Its stock chart somewhat mirrors StoneCo’s. However, PAGS has nearly doubled from its November 2023 trough, and I foresee further upside as the business prospers in a more favorable environment. Analysts anticipate 7-8% annual revenue growth moving forward, plus 15-20% average annual EPS expansion. This is terrific growth for a stock trading at just 11x forward earnings. With $597 million in cash against only $67 million in debt, the balance sheet appears very healthy too.
Brazil’s rate cuts are morphing into growth tailwinds, evidenced by PagSeguro’s 11.8% TPV growth in Q4. Furthermore, micro-merchant TPV grew 14% YoY in Q4, now benefiting from a mobile tap-on-phone solution. Combined with TPV in merchant acquiring, this led to a record R$27.6 billion in deposits, up 33% year-over-year. To me, these metrics point to a very bright future for PagSeguro. It also demonstrates that rate cuts are having a profoundly positive effect on Brazil’s fintech sector. As cuts continue, I anticipate PagSeguro’s share price will climb higher.
Qifu Technology (QFIN)
Qifu Technology (NASDAQ:QFIN) is a Chinese Credit-Tech platform delivering comprehensive tech services to aid financial institutions, consumers, and SMEs throughout the loan lifecycle. Offerings range from borrower acquisition and initial credit evaluation to fund matching and post-funding services. Before you run away from this stock given China concerns, let’s examine the fundamentals. Although shares are down 57% from the 2021 peak, they are essentially flat compared to March 2022 levels. I believe the latest spike could spur a breakout. The stock trades at a bit above $18 as of writing, and may break above $20 by the time you read this. I apologize if that turns out to be the case.
QFIN posted strong Q4 results, with 15% YoY revenue growth beating estimates by 5.55%. That’s alongside a 25% net margin. Qifu also unveiled a new $350 million buyback program starting in April 2024. Bearish China sentiment leaves shares at just 4.4x forward earnings. With $590 million in cash versus $113 million in debt, the balance sheet looks solid too. QFIN also pays a 4.4% dividend and churns out substantial profits. I expect this shareholder-friendly stock to appreciate further as analysts forecast ongoing double-digit EPS expansion. That makes it one of the most undervalued stocks you can buy right now.
Rush Street Interactive (RSI)
Rush Street Interactive (NYSE:RSI) has also been rangebound for nearly two years after initially sliding when the post-Covid boom subsided. However, I foresee significant upside ahead. RSI provides real-money online casino, online and retail sports betting, and social gaming services across the U.S., Canada, Mexico, and Latin America. Gambling and betting are booming – slower growth perhaps, but remarkable expansion as more states legalize it thanks to intense lobbying efforts. RSI is positioned to capitalize on this megatrend.
Shares have already recovered 90% over the past year, and I anticipate this trajectory will persist. Revenue growth of 15% is expected in 2024, while the stock trades at just 0.56x forward sales. It also goes for 30x 2025 EPS, a steal given further 31% projected growth in 2026 and ongoing rapid expansion thereafter. RSI trounced EPS estimates by 46% in 2023, and positive EPS is expected by mid-to-late 2024.
Super Group (SGHC)
Super Group (NYSE:SGHC) is another online sports betting and gaming operator via its Betway and Spin brands. It benefits from the same tailwinds as Rush Street, so there’s little to add except that SGHC is another turnaround candidate that could quickly break its two-year sideways trend. Based in Guernsey, it is expanding globally. As a SeekingAlpha analyst noted, SGHC should have no trouble accelerating growth to the ~10% industry rate as Canada opens online gambling.
While analysts forecast nearly 100% EPS growth over 2024-2028, I believe SGHC could dramatically outdo expectations with more jurisdictions approving online betting and gambling. It exceeded EPS projections by 322% in 2023.
On the date of publication, Omor Ibne Ehsan 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.
