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Undervalued stocks are like the designer garments you find on the clearance rack. They may be surrounded by a sea of duds, but they're priced efficiently despite having tons of upside.
In this article you’ll learn how to tell if a stock is undervalued and meet six value-rich stocks that deserve a look in May 2024.
Identifying Undervalued Stocks
Typically, finding the best undervalued stocks involves technical analysis of financial metrics plus qualitative evaluation of the business model, competitive environment and industry. The financial review may begin with peer and historic comparisons of popular valuation ratios, such as price-to-earnings (P/E), price-to-book (P/B) and price-to-sales (P/S). It can also entail analysis of the capital structure, growth trends and business outlook.
Methodology For Picking These Undervalued Stocks
The methodology for finding these stocks focuses on valuation metrics. Here are the screening criteria:
- PEG ratio of less than 1. The PEG ratio is a stock's P/E ratio divided by the earnings growth rate. Lower is better. Values below 1 generally imply a stock is underpriced.
- P/B ratio less than 2. This ratio compares a company's market value to its book value. As with the PEG ratio, lower is better. The most aggressive value investors prefer companies with P/B ratios below 1. Using 2 as the maximum provides a broader universe of options while still ruling out companies that are likely overvalued.
- Trailing 12-month (TTM) Ebitda growth above 25%. Ebitda is earnings before interest, taxes, depreciation and amortization. It is a measure of earnings and cash flow. Limiting the search to companies with recent Ebitda growth helps weed out stocks that have stagnant business performance.
- TTM EPS growth above 25%. This requirement, like the one above, keeps the search focused on growing businesses.
- Positive analyst ratings. Analysts provide a useful second opinion for validating your own research.
According to the Tradingview stock screener, some 65 Nasdaq and NYSE stocks meet these qualifications. The six stocks below are the largest of the 65 in terms of market capitalization. The smallest of the group has a market value of $22.4 billion, so there are no small- or mid-cap stocks included.
The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes' most popular report, 12 Stocks To Buy Now.
The 6 Most Undervalued Stocks For May 2024
This table includes the six U.S.-traded value stocks that look like good opportunities in mid-2024. For more investing ideas, also see our list of the best 2024 stocks.
Table data sources: Morningstar, Tradingview.
Note that four of these companies are headquartered outside the U.S. Additionally, one is a real estate investment trust (REIT). International stocks and REITs do come with their own risks, which may not be appropriate for your portfolio. Take that as an opportunity for further research to help you refine your own value investing methodology.
1. Toyota Motor ADR (TM)
- Share price: $234.20
- PEG ratio: 0.14
- P/B ratio: 1.37
- TTM Ebitda growth: 40.7%
- TTM EPS growth: 73.3%
- Dividend yield: 1.8%
Toyota Overview
Toyota designs, builds and sells vehicles around the world. The company has extensive operations in the U.S. but is based in Japan.
Why TM Is A Top Pick
Toyota has delivered impressive gains in Ebitda and EPS over the past year. The main drivers are strong hybrid-electric vehicle (HEV) sales combined with cost reductions. Those earnings gains have not gone unnoticed by investors. Year to date, TM stock is up about 28%.
Even with the recent gains, the automaker's valuation metrics remain reasonable. Value investors will also appreciate that TM has historically been a low-volatility stock.
2. Stellantis N.V. (STLA)
- Share price: $25.79
- PEG ratio: 0.33
- P/B ratio: 0.86
- TTM Ebitda growth: 36.4%
- EPS growth: 28.3%
- Dividend yield: 6.4%
Stellantis Overview
Stellantis is also a foreign automaker. The company is based in the Netherlands and sells cars under the Alfa Romeo, Chrysler, Dodge, Jeep and Maserati brand names, among others.
Why STLA Is A Top Pick
Stellantis, like Toyota, has generated double-digit growth in Ebitda and EPS over the past 12 months. But while Toyota is focusing on HEVs, Stellantis is targeting the growing EV sector. Strategic moves in that direction include investments in its EV product line and a partnership with Chinese EV-maker Leapmotor.
Stellantis also recently announced a €3 billion share buyback program. The first €3 billion of that authorization will be spent before June 5, 2024. Shareholders additionally enjoy an impressive dividend yield of 6.4%.
3. Baidu ADR (BIDU)
- Share price: $94.41
- PEG ratio: 0.08
- P/B ratio: 0.78
- TTM Ebitda growth: 56.3%
- TTM EPS growth: 153.3%
- Dividend yield: NA
Baidu Overview
Baidu is a Chinese company that operates a popular search engine and related services for Chinese users. Baidu also sells advertising and cloud storage.
Why BIDU Is A Top Pick
BIDU is an interesting pick because there aren't many mega tech stocks that can be characterized as undervalued. As an example, Baidu's closest U.S. counterpart, Google parent Alphabet (GOOG), trades at much higher multiples.
Baidu's recent revenue trajectory has been unimpressive, which is contributing to its lagging stock price. But there are two reasons why investors may revisit BIDU and push its stock price higher. One, the company has established a pattern of double-digit earnings surprises. If that pattern continues, investors are likely to respond. And two, Baidu is investing heavily in AI and autonomous driving—technologies that U.S. investors love.
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4. Agnico Eagle Mines
AEM
- Share price: $62.49
- PEG ratio: 0.09
- P/B ratio: 1.61
- TTM Ebitda growth: 31.6%
- TTM EPS growth: 187.0%
- Dividend yield: 2.5%
Agnico Eagle Mines Overview
Agnico Eagle Mines is a Canada-based gold mining and exploration company. AEM has operations in Canada, Australia, Finland and Mexico, plus development projects in the U.S. and Columbia.
Why AEM Is A Top Pick
AEM's last financial report was well-received by investors, who've driven the stock up 32% since. Highlights from the fourth quarter include record gold production, record operating cash flow, record free cash flow and record annual safety performance. AEM also announced a 10.5% increase in its gold mineral reserves.
Looking forward, AEM leadership predicts a stable three-year outlook for payable gold production. The forecast has a low-end of 3.35 million ounces in 2024 with a gradual climb to the high end of 3.6 million ounces in 2026.
Note, too, that gold prices have been surging since early March. The trend generally has analysts seeing more upside in gold mining stocks.
5. Vici Properties (VICI)
- Share price: $27.20
- PEG ratio: 0.11
- P/B ratio: 1.12
- TTM Ebitda growth: 107.1%
- TTM EPS growth: 97.1%
- Dividend yield: 6.0%
Vici Properties Overview
Vici is a REIT that specializes in gaming and hospitality properties. The company owns dozens of entertainment venues in the U.S. and Canada, including Caesars Palace Las Vegas, MGM Grand and Venetian Resort Las Vegas.
Why VICI Is A Top Pick
In 2023, VICI recorded impressive sales and earnings growth of 38.9% and 124.9%, respectively. The company also originated $1.8 billion in acquisitions and investments to strengthen its portfolio and set the stage for continued growth. CEO Edward Pitoniak has predicted the company will deliver above-average AFFO per share growth next year.
AFFO is a REIT-specific metric that quantifies the cash the company has available for shareholder distributions. That means a rising AFFO per share is good news for income-oriented investors. Vici's current dividend yield of 6% is already the highest among the stocks on this list.
6. Tenaris SA ADR (TS)
- Share price: $38.10
- PEG ratio: 0.11
- P/B ratio: 1.32
- TTM EBITDA growth: 32.30%
- TTM EPS growth: 53.6%
- Dividend yield: 3.2%
Tenaris Overview
Tenaris SA makes pipes for the oil and gas industry and other industrial applications. The company is based in Luxembourg and operates in the Americas, Europe, Middle East, Africa and Asia.
Why TS Is A Top Pick
TS has benefitted recently from high pricing and margins in the Americas driven by pent-up demand during Covid. While demand is now slowing to more sustainable levels, TS leadership is optimistic about the long-term outlook for natural gas. The company is also supplementing its organic growth with its strategic acquisition pipeline.
TS pays a nice dividend yield of 3.2% and regularly buys back its shares. The company is currently working through the second $300 million phase of its approved $1.2 billion buyback program.
Bottom Line
Finding the low-priced gems of the stock market takes legwork, as does shopping the clearance rack. But the rewards of value investing are clear. You get bragging rights plus a higher net worth and, possibly, some dividend income to boot.
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The brain trust at Forbes has run the numbers, conducted the research, and done the analysis to come up with some of the best places for you to make money in 2024. Download Forbes' most popular report, 12 Stocks To Buy Now.
