3 undervalued stocks ready to sizzle
So far, the stock market hasn’t had much courage or spunk in 2022, and many industries have borne the brunt of these problems. Markets remained volatile and the war in Ukraine affected commodity prices, inflation and interest rates. Changes in monetary policy could also mean more storms to come.
This is peak time for undervalued stocks. Let’s take a look at a few and why you might want to hop on.
Why Choose Undervalued Stocks?
An undervalued stock is currently selling well below its intrinsic value. Let’s say a stock sells for $75 but is worth $90 based on other data. In this way, it is considered undervalued.
There are good reasons to dip into undervalued stocks – who wouldn’t want to pay less for more future cash flow?
You can check out some tips and formulas for valuing undervalued stocks:
- Debt ratio (D/E): The D/E ratio helps you understand how a company finances its assets from an equity versus debt perspective. Too much debt can be risky for investors, but a high D/E ratio shows that a company investing in additional income streams can lead to positive results, using the following formula: Debt to Equity Ratio = Total Liabilities / Total Equity
- Earnings per share (EPS): Earnings per share (EPS) indicates a company’s profit, and you can determine it by dividing a company’s reported net profit after tax. Next, subtract the company’s preferred stock dividends from its outstanding shares: EPS = net earnings – preferred dividends / weighted average of shares outstanding.
- Price-to-book ratio (P/BV): The P/BV ratio refers to the market value of equity compared to the book value of equity using price to book value = market value of equity / book value of equity.
- PE and PEG report: A high price-to-earnings (P/E) ratio means investors pay more for each unit of net income, making it more expensive to buy than a stock with a lower P/E ratio. To get the PEG ratio, you take a company’s P/E ratio and divide it by its earnings growth rate, like this: PEG ratio = P/E / Annual EPS growth. A PEG ratio of 1.0 or less suggests a stock is fairly priced or even undervalued. A PEG ratio above 1.0 has always suggested that a stock is overvalued. However, it’s important to remember that a company’s growth may not continue as it has in the past, so you also need to assess more than just the PEG ratio.
Do you have to figure it all out on your own? Absolutely not. Getting a good stock screener on your side can help you research stocks to determine if a stock is undervalued.
3 undervalued stocks to buy
Let’s look at three undervalued stocks you might consider adding to your portfolio.
SoFi Technologies Inc. (NASDAQ: SOFI)
SoFi Technologies, Inc., based in San Francisco, Calif., provides digital financial services through its lending, financial services and technology platform. Members can borrow, save, spend, invest as well as take advantage of student loans, personal loans for debt consolidation and home improvement projects as well as home loans. SoFi Technologies Inc. also offers cash management, investment options and other related services. It also operates Galileo, a technology platform and Apex, a technology platform that offers investment custody and clearing brokerage services.
Its fourth quarter results showed record annual revenue of $280 million and annual adjusted net revenue of $1 billion, as well as fourth quarter adjusted EBITDA of $5 million and a Positive adjusted EBITDA of $30 million for the full year.
The company ended the year with 3.5 million total SoFi members, up 87%, or 1.6 million and 500,000 above SoFi’s stated goal. The company added 523,000 new members in the fourth quarter, up 39% from the number of net additions in the third quarter of 2021. The company also reported triple-digit year-over-year revenue growth with 906,000 new products, up 51% from the number of net additions. in the third quarter, to end 2021 with a record total of 5.2 million products.
Dow Inc. (NYSE:DOW)
Dow Inc., a materials science company, combines science and technology to develop innovative solutions in three business areas: performance materials and coatings, industrial intermediates and infrastructure, packaging and specialty plastics. The company offers a wide range of solutions to consumer and infrastructure end markets through performance coatings and monomers and consumer solutions through acrylic, cellulosic and silicone-based technology platforms for architectural and industrial coatings, home care and personal care end markets. The company also creates chemical intermediates for manufacturing processes as well as custom downstream materials and formulations that use advanced development technologies.
Dow delivered year-over-year revenue and earnings growth, with net sales up 34% year-over-year with gains in every operating segment, business and region, although its volume decreased by 4% year-on-year due to global supply and logistics constraints.
The company reported operating EBIT of $2.3 billion, up $1.2 billion year-on-year due to margin expansion and higher earnings on equity. The company also saw an 88% cash flow conversion in the quarter and returned $912 million to shareholders, including $512 million in dividends and $400 million in share buybacks.
Rio Tinto Plc (NYSE: RIO)
Rio Tinto Plc, headquartered in London, explores, exploits and processes mineral resources. It operates through iron ore, aluminum, copper and diamonds, energy and minerals, and other operating segments through a global seaborne trade in iron ore, bauxite, alumina and primary aluminum, gold, silver, molybdenum and other by-products, uranium, borates, raw materials of salt and titanium dioxide and coal mining.
The company showed significant price strength for its major commodities, which achieved free cash flow of $17.7 billion and underlying profit of $21.4 billion, after taxes and government fees. of $13 billion. This led Rio Tinto to pay its highest ever dividend of 1,040 US cents per share, including a special dividend representing a 79% payout.
Its $25.3 billion net cash generated from operating activities was 60% higher than 2020, due to higher prices, which showed 88% higher free cash flow of 17.7 billion, as well as a net profit of $21.1 billion, 116% higher than in 2020.
The company had $1.6 billion in net cash at the end of the year, compared to net debt of $0.7 billion at the start of the year.
Get started with undervalued stocks
Finding undervalued stocks of great companies and then holding them for the long term has proven to be a great strategy for investors. Once the rest of the market discovers that the stock is undervalued, you are already well on your way to spectacular returns.
You can look for other undervalued stocks in addition to these three stocks – just look at the underlying fundamentals to get a grip on the good ones.