Today, May 12, 2022, Dow Jones is trading at ~31,530, the S&P 500 at ~3,900, and Nasdaq at ~11,270.
The markets keep going down, but analysts think that we may be at the end of this selloff. Further, the market seems to be fairly valued right now and could present an opportunity if it crashes more.
But you don’t have to wait to put your money to work. You actually don’t even have to be content with whatever mediocre returns the market will provide if you get in while it’s undervalued.
We’ve done our research and found 4 outperforming, stable, and undervalued stocks with more than 20% upside.
Let’s dive right in…
1.) Resolute Forest Products
Specifically, the market pulp segment provides bleached Kraft pulp which can be used to produce paper products like diapers, tissue, specialty, and packaging paper products.
Although it provides its products globally, the company’s primal areas of operation are the USA, Canada, and Mexico.
Based on 4 analysts who forecast an average price target of $18.75 for RFP in the next 12 months and its current price ($13.9), the stock has a 35% upside. The highest estimated price is $19 and the lowest is $17.5.
The fundamentals of this company suggest that the upside is a conservatively predicted scenario. We think that this stock is a long-term BUY opportunity that will bring much greater returns if you hold it in your portfolio for a couple of years.
Let’s get specific…
The company had a great overall performance lately. The net income it generated on its equity was 20% and its revenue growth Y/Y was 30%.
What surprised us most was its EPS growth of 3,091%. No, this wasn’t a typo; its diluted earnings per share grew from $0.12 in 2020 to $3.83 in 2021.
Now, is this performance guaranteed to continue? No, but difficult times won’t turn bad performance into much trouble either. The company has enough liquidity to meet its financial obligations on time and then some (current ratio: 2.3, interest coverage: 27).
But the most important reason this stock deserved #1 for us was its price. It’s currently trading at only 3.6 times its EPS and 0.73 times its book value. We believe that such phenomenal undervaluation coupled with outstanding performance and great stability makes this stock worthy of your attention.
Source: RFP Annual Report
2.) Lennar Corp. (LEN)
Lennar Corp. (NYSE: LEN) founded back in 1954 and based in Miami, Florida has a homebuilding business and mainly engages in the construction and selling of single-family houses (both attached and detached types).
The company, along with its subsidiaries, operates the following segments: Homebuilding East, Homebuilding Central, Homebuilding Texas, Homebuilding West, Financial Services, Multifamily, and Lennar Other segments.
Lennar also buys, develops, and sells residential land.
Based on the 16 analysts’ 12-month average price target of $102.5 and the stock’s current price of $73.7, it has a projected upside of 39%. Its highest estimated price per share is $154 and its lowest is $75.
Such a price increase is very likely once the market realizes the growth potential here. LEN’s market prominence, undervaluation, and stability underlie this opportunity.
Let’s have a look at the numbers…
LEN’s recent performance was superb. Its ROE was 21%, it grew revenue by 20.6%, and had an 81.8% earning per share Y/Y growth.
If you are looking for long-term stability, this company has a lot of it too; its current ratio was last reported at 2x. We also appreciate the fact that Lennar has a conservative capital structure (D/E: 0.6) that guarantees room for financing opportunities in the future.
And the best thing is its trading price right now which is at 5.1 times its EPS and 1.1 times its book value.
Combined with its financials, Lennar’s size and brand value can guarantee the safety of principal in bear markets and stable capital appreciation in bull ones.
Source: LEN Annual Report
3.) Kohl’s Corp (KSS)
The company has more than 1,100 stores across 49 states and operates through brands such as Croft & Barrow, Sonoma Goods for Life, Jumping Beans, LC Lauren Conrad, Food Network, etc. Kohl’s also operates a large e-commerce business.
The company’s recent performance and current price could justify the upside the average price target represents. But they definitely make the downside reflected on the lowest price target unfair.
Let’s see why…
First of all, KSS had a good run last year, generating a 20.1% return on its equity. It also grew its revenue by 22% since the year before.
Further, its current assets were 1.5 times its current liabilities and it had an interest coverage of 6.4 times. This level of liquidity suggests enough room for surviving unfortunate business or market changes.
Last but not least, KSS’ price is currently trading at 7.4 times its earnings per share and 1.3 times its book value. Such a low valuation suggests a price correction soon.
Source: KSS Annual Report
4.) Asbury Automotive
Group Inc (ABG)
It offers both new and used vehicles, replacement parts, maintenance and repair services, etc. The company also provides insurance and finance products. Over 80% of the company’s new vehicle revenue came from import and luxury brands.
As of December, 2021, Asbury operated 205 new franchises that represented 31 automobile brands at 155 dealerships. In the same year, the company started operating in the state of Colorado as well.
Based on ABG’s financials, the median upside looks very reasonable. But let’s get into details to see how…
Last year, ABG returned 25% net earnings on its equity and grew its revenue and EPS by 37% and 100%, respectively. These are impressive results that make the stock look very promising right now.
And a bullish outlook is further supported by the stock’s price per share that is trading at 6.7 times the EPS and 1.7 times the book value. No doubt, the market hasn’t really picked up on ABG’s latest performance.
The opportunity here doesn’t have to be short-term only, though. With a current ratio of 1.2 and interest coverage of 7.7, holding the stock in uncertain times would be far from unwise if the growth prospects are still intact.
Source: ABG Annual Report
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