Since the bull market began in November 2022, growth stocks have outperformed value by a significant margin. Nevertheless, value S&P 500 sectors like financials and utilities have led over the past two months as the market has broadened out. Indeed, value stocks may take over leadership, presenting opportunities in these bargain stocks to buy.
Obviously, the market leadership of growth stocks over the past one and a half years has been warranted. Notably, the technology, media and telecommunications sector was the main contributor to earnings growth over the period. However, as we progress through 2024, analysts expect an earnings recovery in other sectors.
Financial, consumer discretionary and healthcare earnings could rebound strongly in the next three quarters of 2024. That momentum will be the catalyst for these bargain stocks to buy. Furthermore, they are trading at a discount to their intrinsic value, below 12 times forward earnings.
Bristol-Myers Squibb (BMY)
This pharmaceutical giant is one of the top bargain stocks to buy. Based on valuations, the investment case for Bristol-Myers Squibb (NYSE:BMY) is clear. At 6 times forward earnings and a 15% trailing free cash flow yield, BMY stock offers substantial upside.
So, why is this pharmaceutical giant so cheap? Its blockbuster, Revlimid, lost partial patent exclusivity in the U.S. in 2022 and competing generics have launched in Europe and Japan. As a result, Revlimid revenue saw a 39% decline from $9.9 billion in 2022 to $6 billion in 2023. Abraxane has also lost exclusivity and Eliquis, another blockbuster, will go off-patent in 2026.
Indeed, these patent losses have pressured Bristol-Myers Squibb. However, it’s one of the bargain stocks to buy at current prices. The company has a plan to replace these revenue losses. First, it has a robust late-stage pipeline, and its current drugs are getting approval for new indications. In 2023, it received ten approvals, with medications like Opdivo permitted for new indications.
Secondly, the company has leveraged its significant cash flow generation to buy growth. Last year, it acquired the three drug companies of Mirati Therapeutics, Karuna Therapeutics and RayzeBio. These deals will enhance Bristol’s oncology and neuroscience pipeline.
Bringing it together, its diversified oncology pipeline will deliver growth in the back half of this decade. However, the company is priced for no growth at 6 times forward EPS, making it a bargain.
Citigroup (C)
The financials were priced for a recession in 2023, especially after several bank failures. However, these fears didn’t materialize, presenting upside in solid franchises like Citigroup (NYSE:C).
From an investment standpoint, Citigroup presents a unique bullish case that could offer substantial upside. Chief Executive Officer (CEO) Jane Fraser has embarked on a comprehensive reorganization focused on streamlining the business and reducing costs. She has simplified the bank into five segments and reduced management layers.
With these changes, Wells Fargo analyst Mike Mayo believes it is one of the bargain stocks to buy. He thinks the reorganization will enable earnings to double in the next three years. As a result, he anticipates C stock to double by the end of 2026.
Lastly, on valuation, Citigroup is one of the most undervalued big banks. Wall Street’s consensus estimates predict $5.88 in EPS in 2024, meaning the bank is trading at 11 times forward earnings.
In addition, the stock is cheap on one of the top metrics to value banks, which is price-to-tangible book value. At the end of Q1 of 2024, tangible book value per share was $86.67. Therefore, Citigroup is trading at 0.73 times tangible book as of this writing. Closing this discount would lead to a 35% upside.
BorgWarner (BWA)
This auto parts supplier is a bargain and could soar. BorgWarner (NYSE:BWA) supplies automakers with air management systems like e-boosters, e-turbos, turbochargers, timing systems, thermal and emissions systems. The two other segments include the drivetrain and battery systems and the e-propulsion segment, which makes power electronics and e-motors.
BorgWarner is a key supplier to the largest global automakers. In 2023, Ford Motor (NYSE:F) and Volkswagen (OTCMKTS:VWAGY) were the main customers, representing 14% and 11% of revenue, respectively. Its technologies are critical to car manufacturing and due to the complexity involved, it benefits from high switching costs.
Moreover, the company is well-positioned to benefit from the tighter emission standards that authorities are implementing globally. It would be beneficial if automakers were to increase production of hybrids and electric vehicles (EVs) to comply with emission standards. Notably, it sells EV and hybrid parts like high-voltage inverters, e-motors, eGearDrive, integrated drive modules and hybrid fan drives.
Considering its exposure to EV technologies, BorgWarner should command a high multiple due to the secular growth opportunities. But it’s dirt cheap and hence, one of the top bargain stocks to buy. At a forward P/E of 9 and a trailing EV/EBITDA of 6, this stock offers substantial upside.
On the date of publication, Charles Munyi 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.
