Using the stock screener at finviz.com, I have been able to identify five stocks that are undervalued. This list includes a variety of well-known brands, including a car company, three technology companies and a pharmaceutical company, but they all have one thing in common – they are grossly undervalued based on how much they are growing. Let’s see why these stocks are worth the investment:
Ford Motor Co. (F) is the only one of the "Big Three" automakers in the US that did not require a federal bailout in 2009; as such, it is the only US automaker where employees can contractually call a strike. Ford stock declined a little after the United Auto Workers (UAW) called for a contract negotiation, but they are close to signing a four-year agreement. Ford stock will likely increase after the ink is dry on the contracts.
Ford has a PEG of 0.73, indicating it is likely undervalued, but so does General Motors Company (GM), its closest competitor. However, Ford is in a better position; it now has a larger market cap than GM ($35.6 billion versus $30.8 billion for GM), fewer employees, and a higher operating margin at 6% to GM's 4%. Add to this the fact that auto sales started to climb again in September 2011 and Ford has huge potential. You’ll be able to pull a decent profit but if you are going to earn more than inflation and transaction fees, you will need to buy before the UAW contract is signed. Moreover, major analysts agree, Ford is expected to double in value within the next 12 months.
Cisco Systems, Inc. (CSCO) has been taking an aggressive stance with its competitors, going so far as launching a website that criticizes competitor Juniper Networks (JNPR). However, some analysts believe that this is just a precursor to Cisco acquiring Jupiter; if they are right, Cisco’s value will jump.
Further, Cisco is pioneering a series of product developments that could make its value skyrocket. Cisco is currently trading for $15.19 per share; even if there is no Jupiter deal or its recent innovations fail to cause a swell in value, Cisco is still predicted to rise to $19.36 within the next 12 months. Need more evidence? Cisco has a PEG of 1.01, so it could be undervalued as it is, and its price-to-earnings ratio is 12.98, so its estimated annual growth is over 12%. This stock is cheap.
Pfizer, Inc. (PFE) is expected to grow at a rate of just 3% annually, far less than competitors like Johnson & Johnson (JNJ) and Abbott Laboratories (ABT), which are expected to grow at 6% and 9%, respectively. But, that may be a little low based on Pfizer’s PEG of 2.29 and its price-to-earnings ratio of 16.18. These are on par with, if not better than, its competitors – for instance, JNJ’s PEG is 2.30 but its price-to-earnings ratio is just 14.85. Moreover, Pfizer has a higher EBITDA than JNJ ($24.86 billion versus $19.51 billion) and a higher revenue ($67.59 billion versus $63.40 billion) in spite of having a lower market cap ($135 billion versus $170 billion). As if you needed another reason to take a chance on Pfizer, it is in the process of finalizing a merger with Icagen, Inc. (ICGN.O); when finished, it will own 70% of the company. Pfizer shares are cheap.
Apple, Inc. (AAPL) is currently trading around $375 per share, but it is still undervalued. It has a PEG of 0.62, indicating it is undervalued, combined with a price-to-earnings ratio of 14.82. In turn, Apple is expected to increase by almost 30% within the next 12 months, to $492.65. The best part is that Apple has just announced its iPhone 5 and a new service called Apple iCloud, and Apple tends to sell off such news, meaning that the price jumps when it has announcements.
Lately, however, investors have become wise, and the price starts going up on Apple several weeks before a launch. So, why buy now? Apple’s price-to-earnings ratio is a little low for a high-growth company; if you up that estimate even a little, the price target will swell. So, if you buy now, you can take full advantage of the upswing. Is it any wonder Apple is one of the most popular stocks amongst hedge fund managers? I think Apple shares have little downside from here.
Hewlett-Packard Co. (HPQ) may be at a low – it is currently trading at $22.20, down from its 52-week high of $49.39. The loss may be discouraging, but there are three reasons you consider buying HPQ: it has a 2.10% dividend yield; it is estimated to grow to $31.89 within the next 12 months; and, with its share prices taking such a sharp decline, HPQ is vulnerable to a takeover, which could mean huge profits for someone buying in now. HPQ competitor Oracle Corporation (ORCL) is believed to be a likely buyer. If HPQ fulfills current earnings estimates, ORCL would earn a return on investment around 18%. Buying in HPQ now will ensure you are buying low, before speculation drives the price higher. HPQ's shares are inexpensive at this point.