Finding value in today’s market is what most investors are after. Given where broad market-based multiples sit, many investors who may be sitting on the sidelines may be doing so for fear that these multiples may have gotten ahead of the market’s medium-term potential.
And with the recently-imposed tariffs put in place by the Trump administration, alongside growing fears that consumer spending could slow and recessionary forces could take hold, many cautious investors may certainly feel warranted in their willingness to wait out this period of uncertainty.
With that said, it’s my view that there’s always value to be had – in any market. And while valuations remain high overall, there happen to be pockets of the market which are beaten down right now, and ripe for the picking.
Here are three undervalued stocks I think are worth considering for investors looking to back the truck up on value opportunities today.
Lennar (LEN)
One of the top home builders in the market, Lennar (NYSE:LEN | LEN Price Prediction) is a company I’ve long thought of as a solid way to play the U.S. housing market. The new home builder has seen tremendous growth in recent decades due to a combination of organic growth as well as industry wide consolidation, which Lennar has benefited from to a disproportionate degree.
Now, as is the case with most housing stocks, Lennar really trades as a way for investors to play interest rates. When interest rates (and therefore mortgage rates) are on the decline, investors tend to look for ways to play the housing market. Home builders like Lennar that provide hefty amounts of cash flow and earnings (more than $500 million in earnings this past quarter alone) can provide the right sort of operating leverage to this trend, and amplify investor returns over the long-haul.
Of course, the opposite is also true – a higher for longer scenario in the world of interest rates has led LEN stock to trade at a forward price-earnings ratio under 8-times. I’m of the view that interest rates are likely to come down, and this is a valuation worth buying, but I can also see the other side of the coin – that’s what makes markets after all. But with Lennar’s price-book ratio of 1.3-times and more than $3 billion in liquidity, I think there’s a lot to like about owning this name here.
Halliburton (HAL)
Shifting our focus toward the energy sector, Halliburton (NYSE:HAL) is among the top oil exploration and services companies in the market I think is worth considering for a number of reasons. Of course, one of these reasons is the fact that HAL stock currently trades at a forward price-earnings ratio of 8-times. That’s dirt cheap, even for the energy sector right now.
But in terms of energy services providers, Halliburton is also a company with one of the widest moats in this space, in my view. Despite producing more than $5 billion in revenue this past quarter alone, along with operating cash flow that came in just shy of $500 million (a pretty great cash flow margin, if you ask me), HAL stock trades at just 0.79-times sales. It’s hard to imagine a world in which this valuation makes sense (outside of really extreme scenarios), so this is a stock that many investors may certainly want to consider at these levels.
With shares of Halliburton trading well below historical norms and the company’s North American revenue growth trajectory stabilizing, I think this is a company that represents a great way to play rising energy demand (and the energy independence trade) over the long-term (a 3.3% dividend yield to boot doesn’t hurt).
Altria (MO)
Last, but certainly not least in the value department, we have cigarette maker Altria (NYSE:MO).
Given the fact this company is best-known for its Marlboro cigarettes (among other brands), Altria has since branched out with a goal of becoming a global leader in smokeless products.
Trading at a forward price-earnings ratio of around 11-times at the time of writing, Altria certainly looks like an enticing pick with a dividend yield of 6.9% and a whopping free cash flow yield of more than 9%.
This free cash flow yield is a result of Altria’s incredibly focused management team, harnessing various margin-generating strategies to push earnings consistently higher. Indeed, despite a revenue decline of roughly 6% this past quarter, the ability of this company to generate EPS growth of 6% speaks to just how profitable and efficient Altria has become in providing consumers with their nicotine products of choice.
Again, this is a stock that’s not for everyone, and its discount is certainly understandable. But at these levels, this discount simply seems too large for many investors to miss out on.
Top Gaining Stocks
Top Losing Stocks