Written by MarkertBeat. Staff
February 25, 2021
With the Dow Jones Industrial Average (DJIA) hitting new highs seemingly every day, it may seem like the wrong time to be looking at undervalued stocks. Or is it?
From cannabis to cryptocurrencies, and let’s not forget electric vehicles the market seems to be blowing bubbles wherever you look. And that’s why now may be exactly the right time to zig while the market is sagging. And that means looking for undervalued stocks.
But finding undervalued stocks is subjective. Some analysts use specific fundamental metrics. Others use technical analysis.
However, the general idea is that you’re looking for stocks that are trading below their fair value.
In some cases, these may be stocks whose financials are stronger than other stocks in their sector, but it’s trading at a lower price. In other cases, a company may have potential that is not reflected in its stock price. Put another way, undervalued stocks are stocks that have room to grow. That’s why they deserve a place in your portfolio.
And that’s why we’ve put together this special presentation on stocks that are undervalued right at this time. An investment in these companies is likely to be rewarded because the stocks are moving under the radar from the broader market.
Quick Links
- Ford
- General Motors
- VMware
- BioMarin Pharmaceuticals
- CVS
- Coca-Cola
- Kellogg
#1 - Ford (NYSE:F)
The electric vehicle (EV) sector is full of companies that recently went public or are in the process of doing so. That makes Ford (NYSE:F) a compelling choice as our first of the undervalued stocks you should consider. In fact, Ford is considered to be one of the most undervalued stocks to this point.
With a stock price of over $12, a price the company hasn’t seen since 2018, you might say the stock is not undervalued. However, Ford has a market cap of around $45 billion with free cash flow of around $3 billion. The company finally looks like it has its balance sheet in order and just in time to deliver on its promise to go all in on electrification.
A key part of that strategy will be its partnership with the electric truck manufacturer, Rivian. Ford bought a minority stake in the company in 2019. Rivian is expected to deliver its first truck this year which should add to Ford’s value.
Ford’s own Mustang Mach-E is on track to launch this summer. The Mustang will be the first of over a dozen EVs the company is planning to launch in the next two years.
About Ford Motor
Ford Motor Company develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments. The company sells Ford and Lincoln vehicles, service parts, and accessories through distributors and dealers, as well as through dealerships to commercial fleet customers, daily rental car companies, and governments.
Read More - Current Price
- $9.88
- Consensus Rating
- Reduce
- Ratings Breakdown
- 3 Buy Ratings, 7 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $11.83 (19.8% Upside)
#2 - General Motors (NYSE:GM)
Sticking in the automotive sector, investors looking for undervalued stocks should consider General Motors (NYSE:GM). Although many investors don’t consider Tesla (NASDAQ:TSLA) to be a fair comparison, it’s worth noting that GM has a market cap of around 76 billion as of this writing. But the company delivered five million vehicles globally in 2020. Tesla deliver just under 500,000 vehicles and has a market cap of nearly 10 times that of GM.
Recently GM has made headlines by launching its Ultium Platform. According to GM, the platform will fit every type of vehicle and provide performance benefits in terms of range, power and the ability to charge quickly. The platform is also a cornerstone for GM’s plan to electrifying its entire fleet by 2035. As a first step, the company plans to have 30 new EVs available by 2025. The company is also partnering with EVgo a company to add 2,700 new fast charging stations throughout the United States.
About General Motors
General Motors Company designs, builds, and sells trucks, crossovers, cars, and automobile parts; and provide software-enabled services and subscriptions worldwide. The company operates through GM North America, GM International, Cruise, and GM Financial segments. It markets its vehicles primarily under the Buick, Cadillac, Chevrolet, GMC, Baojun, and Wuling brand names.
Read More - Current Price
- $51.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 10 Buy Ratings, 9 Hold Ratings, 3 Sell Ratings.
- Consensus Price Target
- $58.70 (13.3% Upside)
#3 - VMware (NYSE:VMW)
VMware (NYSE:VMW) can’t seem to generate the conviction from investors that it deserves. Although the company is often compared to Salesforce.com (NYSE:CRM), Salesforce seems to get more love. For example, from the start of the pandemic in March of 2020, CRM stock has climbed nearly 100%. VMW stock by contrast has climbed about half of that (57%).
The companies have similar business models, but there is a key difference. Salesforce connects businesses with customers and clients through the cloud. And investors love the recurring revenue of its SaaS service. VMware also has an SaaS component, but the company’s business is also fundamental to the entire cloud environment. In fact, VMware is in the business of helping companies make the best use of the cloud on whatever device they’re using. And the company is also a back door play on the 5G revolution.
VMW stock should have gotten more of a lift from the shift to remote work, but it still remains undervalued at this point. Investors will be paying close attention to the company’s earnings report on February 25. A solid showing could finally be the catalyst that VMware needs.
About VMware
VMware, Inc provides software solutions in the areas of modern applications, cloud management and infrastructure, networking, security, and workspaces in the United States and internationally. It offers VMware multi-cloud solutions, including VMware vSphere, a data center infrastructure that provides the fundamental compute layer; and vSAN and VxRail, which offers holistic data storage and protection options to applications running on vSphere; as well as VMware Cloud Foundation, a cloud platform that combines its vSphere, vSAN, and NSX with VMware Aria Cloud Management into an integrated stack that delivers ready cloud infrastructure for private and public clouds.
Read More - Current Price
- $143.00
- Consensus Rating
- N/A
- Ratings Breakdown
- 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- N/A
#4 - BioMarin Pharmaceuticals (NASDAQ:BMRN)
BioMarin Pharmaceuticals (NASDAQ:BMRN) is an undervalued name in the biopharmaceutical sector. BioMarin Pharmaceuticals occupies the gene therapy niche which gives the company higher margins and a wider moat. The company also has several patents to help protect its pipeline drugs.
The stock is down about 3% so far in 2021 and is struggling to find direction. The culprit seems to be Roctavian, the company’s gene therapy candidate for the treatment of hemophilia A. The launch of the drug was on track for this year, but the FDA requested more information in August and that means 2022 is more a likely launch date.
For many small-cap biotech stocks, news like that would be devastating, but in the case of BioMarin the sell-off looks like an opportunity. The company has a deep pipeline including a drug for treating achondroplasia, a condition that has no approved treatments. The company has filed a New Drug Application for the drug and the FDA has an August 2021 deadline.
About BioMarin Pharmaceutical
BioMarin Pharmaceutical Inc develops and commercializes therapies for people with serious and life-threatening rare diseases and medical conditions. Its commercial products include Vimizim, an enzyme replacement therapy for the treatment of mucopolysaccharidosis (MPS) IV type A, a lysosomal storage disorder; Naglazyme, a recombinant form of N-acetylgalactosamine 4-sulfatase for patients with MPS VI; and Kuvan, a proprietary synthetic oral form of 6R-BH4 that is used to treat patients with phenylketonuria (PKU), an inherited metabolic disease.
Read More - Current Price
- $65.66
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 16 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $94.20 (43.5% Upside)
#5 - CVS (NYSE:CVS)
Another undervalued stock to consider in the healthcare sector is CVS (NYSE:CVS). CVS stock has been falling since it released earnings in mid-February, but it’s hard to see why. It appears that the stock has been a victim of not meeting elevated expectations. The stock is trading about 10% below its 52-week high set in January, so it’s possible that this is just some profit taking.
Whatever the reason, CVS presents an attractive opportunity for a couple of reasons. First, the pharmacy chain will be front and center as part of the Covid-19 vaccine rollout. Although being a Covid-19 testing site didn’t produce significant revenue in 2020, the company is optimistic that getting customers into the store to “get the jab” will increase front of store sales.
That will give the company a chance to test the viability of its HealthHUB concept. This store-in-store concept will be manned by medical professionals and will allow CVS to offer expanded health care services and offerings. The company slowed the company’s rollout, but they are forecasting 1,500 locations will have HealthHUB’s by the end of the year.
About CVS Health
CVS Health Corporation provides health solutions in the United States. It operates through Health Care Benefits, Health Services, and Pharmacy & Consumer Wellness segments. The Health Care Benefits segment offers traditional, voluntary, and consumer-directed health insurance products and related services.
Read More - Current Price
- $44.36
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $70.50 (58.9% Upside)
#6 - Coca-Cola (NYSE:KO)
Turning your attention to the consumer defensive sector, let’s take a look at Coca-Cola (NYSE:KO). The company is making headlines for the wrong reasons. But that controversy is likely to pass quickly. And if Coca-Cola is lucky, so will the pandemic. The company has a global distribution network and strong brand recognition that just needs the floodgates to open.
That’s because a reopening of restaurants, bars, and live events will be the shot in the arm the company needs. But it doesn’t need as much of a shot in the arm as you might expect. The company reported full-year 2020 earnings in early February. Coke reported full-year revenue of $33.05 billion which was “only” 9% down year-over-year.
Coca-Cola is frequently compared to Pepsico (NASDAQ:PEP), and to be fair Pepsi has also done well during the pandemic. However, looking at recent price movement in the two stocks, Coke looks like the better investment at this time. And although both companies are dividend darlings, Coke also has the edge for consecutive years with a dividend increase by a 57 to 49 margin.
About Coca-Cola
The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks, sparkling flavors; water, sports, coffee, and tea; juice, value-added dairy, and plant-based beverages; and other beverages. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.
Read More - Current Price
- $62.55
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 14 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $72.50 (15.9% Upside)
#7 - Kellogg (NYSE:K)
The last stock on the list is Kellogg (NYSE: K). The food manufacturing company is known for its breakfast cereals and other convenient, packaged items such as Eggo frozen waffles makes this list for one reason, its dividend.
Last year, the company broke a 15-year streak of increasing dividends and that made the stock less attractive for value investors. Kellogg is a notoriously low-growth stock in a sector that has tight margins. That makes the dividend of premium importance.
So when the company reported earnings in early February, it was significant news that the company is planning to increase the dividend at some point in 2021. Although the company is likely to see revenue revert back to pre-pandemic levels, an increased dividend should help this stock move higher. It’s currently down about 4.5% for the year. For value investors willing to hang on, they are likely to get a little capital growth as well.
About Kellanova
Kellanova, together with its subsidiaries, manufactures and markets snacks and convenience foods in North America, Europe, Latin America, the Asia Pacific, the Middle East, Australia, and Africa. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
Read More - Current Price
- $80.50
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $76.35 (5.2% Downside)
The strategy of looking for undervalued stocks is sometimes called value investing. Growth investing has easily beaten value investing over the past decade. However, with the market beginning to look very frothy, value investing may be making a comeback in 2021.
Like all investing strategies, value investing can be subjective. Two investors may look at the same stock and come to two different conclusions.
However, one of the key benefits of value investing is that it is one of the best strategies for managing risk while getting an attractive return. This is because many, though not all, value stocks pay dividends. This can help boost a stock’s total return, particularly since many of these stocks are not known to deliver rapid growth.
And many investors enjoy the ability to invest in specific equities rather than being locked into an exchange-traded fund (ETF) or mutual fund. While those assets are perfectly fine investments, there is less flexibility for investors who enjoy picking their own stocks.
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