Investors have been fearful of a market crash. As such, they ended up dumping several stocks. I think this looks like throwing the baby out with the bathwater. We are in the middle of Q2 2024, and many stocks are still significantly down from their highs after the selloffs. However, many stocks have rebounded over the past few months, though the road to recovery remains long and winding.
As I have noted many times before, if you buy well-established businesses, they are unlikely to disappoint in the long run. The market’s overreaction presents an opportunity to scoop up undervalued stocks today. These stocks could deliver significant gains in the coming years as they rebound towards their intrinsic values. A quarterly beat or a broad-based recovery in the market could also send these undervalued stocks up substantially in the near term.
Undervalued Stocks: Dollar General (DG)
Dollar General (NYSE:DG) has been one of the worst-hit retail companies recently. I have been pounding the table on the stock as it declined to around $100 per share. It has recovered significantly since, but the stock has started sliding down a little again. I believe buying the stock anywhere below $150 is a very good deal.
It is a well-established retail company with some near-term troubles. However, buying it on this weakness could lead to significant returns once growth restarts. Gurufocus puts the stock’s fair value at $272 right now. EPS is expected to double in the next five years, along with mid-single-digit revenue growth going forward. I have a strong conviction it can recover quickly once the broader market cooperates.
Moreover, you’re also getting a 1.72% dividend yield as a sweetener. Rate cuts would also be a very positive catalyst right now. Dollar General has $18.1 billion in debt on which it has to pay high interest on. Once rate cuts start, a lot of expenses should be cleared up. DG is one of the most undervalued retail stocks from what I see.
Gambling.com (GAMB)
Gambling.com’s (NASDAQ:GAMB) stock plunged by over 30% in November 2023, even after it beat expectations on both its top and bottom lines and reiterated full-year guidance. It released its Q4 report in March, reporting 13 cents in EPS, which missed by 3 cents but beat revenue expectations by nearly $5 million. Q4 revenue was up 52.4% YOY to $32.5 million.
Most of its near-term weakness has been related to margins, a problem that should be solved in the coming quarters as rate cuts commence and sports season begins. Sports betting and online gambling have been getting a lot of traction in the past few years, and this traction has only been getting better as more and more states legalize the practice.
This is why analysts remain bullish on future financial metrics, with revenue expected to climb from $131 million in 2024 to $197 million in 2027, along with EPS growing from 79 cents to $1.2. Paying 11 times forward earnings for the stock seems cheap with this growth. B. Riley also set a “buy” rating and a $14.50 price target on the stock.
Grab Holdings (GRAB)
Grab Holdings (NASDAQ:GRAB) is the developer of a super-app for ride-hailing, food delivery, and digital payment services on mobile devices. It operates mostly in Southeast Asia, and I have good conviction that the recovery here can continue. Like most tech and e-commerce stocks, this stock plunged in late 2021. However, it has been recovering recently, with the stock up 22% in the past year.
The growth here has been stellar so far, with a 3-year revenue growth rate of 72% annually, better than 96.2% of peer software companies. Its 3-year FCF growth rate also sits at a stellar 77% per year. I would note that this FCF growth rate is more due to the company’s narrowing losses. Profitability is expected in 2025, and it is expected to expand significantly going forward. EPS is expected to rise from 6 cents in 2025 to nearly 60 cents in 2030. You’re paying just over nine times EPS, even based on 2028 estimates. EBIT is also expected to turn positive.
Of course, sales growth is likely to slow down, but the future 3-5Y total revenue growth rate remains better than almost 96% of the company’s software peers.
Bernstein maintained a Buy rating on Grab, with a price target of $4.1. Loop Capital Markets also maintained a Buy rating on the stock with a $4 price target.
Prosus (PROSF)
Prosus (OTCMKTS:PROSF) is an investment company that invests in various worldwide sectors with long-term growth potential. The stock is trading 41% off its 2021 peak and is still slightly beaten down from its pre-pandemic prices. It is going through some near-term trouble, with EPS declining by around 20% from 2022 to 2023. However, analysts expect a big rebound in the coming years, with EPS reaching $1.9 in 2024.
The stock is currently trading at a huge discount to its net asset value by around 30%. Moreover, the company has a big 26% stake in Tencent (OTCMKTS:TCEHY), and I expect TCEHY stock to appreciate significantly in the coming months, which should also pull up Prosus. Tencent has vast exposure to emerging markets in Asia and is growing its market share regarding electronics and appliances.
All things considered, Prosus has a very high-quality portfolio that should deliver solid upside in the coming years once headwinds clear. The stock’s average price target is $49, which points to a 53% upside from here.
CVS Health (CVS)
CVS Health (NYSE:CVS) has only been falling in the past few months. The stock declined from $80 at the start of April to just $55 as of writing. This is due to quarterly EPS falling badly short of expectations, coming in at 88 cents, some 33% below analyst forecasts. This is a huge miss for a major healthcare company like CVS. We will likely face a slew of price target cuts, downgrades, and bearish sentiment in the coming days.
However, I think that Mr. Market may have gone overboard here. The miss has been priced in right now, sentiment is very low, and expectations are lowered for the future. I think all of this sets up a good environment for CVS to do well in the coming quarters. These margin-related problems should be solved as rates come down and demand picks up.
CVS has $79.4 billion in debt, with interest expenses increasing 21.6% to $127 million in the latest reported quarter. Medicare Advantage utilization pressures and rising healthcare costs are also major contributors to the disappointing performance.
Still, sales are expected to be resilient this year and start growing normally again from next year on. I think this is a once-in-a-decade opportunity to buy the stock for cheap.
Estee Lauder (EL)
Speaking of disappointment and decline, Estee Lauder (NYSE:EL) has been going downward since the start of 2022. The pace of this decline has slowed down, with the stock up 21% from its November 2023 trough. However, there are lots of near-term challenges that the company still needs to deal with.
The company’s international operations are more closely linked to global consumer spending compared to its business within the United States, while its American division continues to operate at a loss. Global economic growth has not been as fast, with certain European countries falling into a technical recession and growing very slowly.
EPS is expected to decline this year to $2.2, down 35.4%, along with sales declining a further 1.8% this year. Nevertheless, analysts expect growth to bounce back significantly, with EPS reaching $4.2 in 2025 and nearly $10 in 2030. That makes me believe it is one of the most undervalued stocks right now.
The company has surpassed EPS expectations by single digits each year for well over the past decade, except for one miss in 2020 for obvious reasons. Thus, I have good reason to believe that EL stock could outperform once demand for its cosmetics products bounces back.
Definitely one of the most undervalued stocks right now.
Sandstorm Gold (SAND)
Sandstorm (NYSE:SAND) is a much smaller business than other companies on this list. Its business model involves entering into agreements with mining companies that allow it to purchase a portion of the gold and other precious metals produced from advanced development projects or operational mines in exchange for upfront payments. The company essentially secures future gold and metal supply streams by acquiring royalty interests and metal purchase agreements from these mining firms.
The stock has been slowly declining since 2020, and I think it could approach a bottom soon as it has become very undervalued. Total assets have increased significantly in the past few years, and many of its assets are scheduled to begin production in the coming quarters. This company has a stake in all types of rare metals, with significant room for margin expansion as their prices increase and cash flow goes up.
Analysts expect the EPS to grow from just 9 cents this year to 33 cents in 2028. It also has a 1.1% dividend yield to sweeten the deal.
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.
