Amid the awful social and economic carnage from the novel coronavirus pandemic, one of the peculiar dynamics that stood out was the influx of new traders. As many financial analysts had bemoaned over the years, young people just weren’t participating in the markets like prior generations. Now, that assumption was turned on its head as new buyers cranked up the volume. But in this mad rush, are there still undervalued stocks to buy?
It’s a fair question. As you know, we’ve seen an abundance of straight-up irrational retail investment purchases. Perhaps most notable was Hertz Global Holdings (NYSE:HTZ). Even before the pandemic struck, Hertz was a struggling business, in part due to the ride-sharing phenomenon. But after the embattled organization declared bankruptcy, apparently, some exuberant traders saw value in HTZ.
Despite it being months ago, I still remember the dramatic rise in HTZ. And I still struggle to explain it other than people going crazy. So, if a bankrupt corporation could receive such enthusiasm, it may seem that undervalued stocks have all but evaporated.
But that’s not the case at all. Indeed, the extreme enthusiasm has been positive for companies flying under the radar. That’s because while everybody is chasing the flavor of the week, astute buyers have the opportunity to load up on what will be hot commodities later. Take a look at the argument for these undervalued stocks to buy and see if you agree:
- Sony (NYSE:SNE)
- Quest Diagnostics (NYSE:DGX)
- Weight Watchers International (NASDAQ:WW)
- Anheuser Busch (NYSE:BUD)
- H&R Block (NYSE:HRB)
- Smith & Wesson Brands (NASDAQ:SWBI)
- AMC Entertainment (NYSE:AMC)
The key here is to look at organizations that will likely outperform once society normalizes. True, the crisis can extend for longer than we like. Eventually, though, this too shall pass. And in that spirit, you should carefully watch these undervalued stocks to buy.
One of the surprising names that have performed reasonably well this year is Sony. Not too long ago, the Japanese consumer technology giant was struggling for relevancy and traction. Recently, SNE stock has become a hot ticket. So, I was also surprised to see that based on the price-earnings-to-growth (PEG) ratio, Sony was among 2020’s undervalued stocks, registering 0.83 in its latest quarter.
Rather than some math trick, there are fundamental indicators to support why Sony appears on our radar. For one thing, the company is a world-class optics developer, supplying smartphone cameras for Apple (NASDAQ:AAPL). Given that one of the main reasons people bought Apple’s latest iPhone was for the advanced camera setup, I believe SNE stock has a stable future.
Of course, the biggest catalyst for shares is the upcoming PlayStation 5. Not to badmouth its competitors, but video games is really one of Sony’s core strengths. Just like you wouldn’t expect the Italians to not produce gorgeous cars for Ferrari (NYSE:RACE), the Japanese are world-class at gaming.
Admittedly, I’m biased because I’m a PlayStation fan and I own SNE stock. However, the sales of gaming consoles speak for itself. Through January 2020, the PS4 sold nearly 107 million total units worldwide, while the Microsoft (NASDAQ:MSFT) Xbox One sold “only” 46.4 million units.
Quest Diagnostics (DGX)
During the peak of the novel coronavirus pandemic in the U.S. – a circumstance President Trump knew could become a reality but didn’t want to share with us – testing became a major issue. Suddenly, names like Quest Diagnostics, which really isn’t a household name until you need to go to the doctor’s office, became relevant.
Over the last several weeks, though, DGX stock has lost some momentum. As a result, it currently sports a PEG ratio of 0.77, technically making it one of our undervalued stocks. Honestly, it’s understandable why that is.
For one thing, interest has again picked up for vaccination companies. With the Trump administration pushing for a vaccine before election day, this implies that testing will become less of an issue. Further, Abbott Laboratories (NYSE:ABT) has become the de facto leader in Covid-19 tests. Thus, DGX stock shed some market value.
Nevertheless, Quest Diagnostics may be an opportunity for patient investors. Keep in mind that two-thirds of Americans may not take a coronavirus vaccine right away. Also, Quest has a diverse portfolio of testing platforms. Once we get past this crisis, demand for traditional medical tests may return, thereby providing a booster shot for DGX stock.
Weight Watchers International (WW)
If you’re searching for undervalued stocks to buy, Weight Watchers International probably wouldn’t come up on your list. Certainly, this is a cynical play so I’m not totally gung-ho on this idea. Moreover, WW stock has been very volatile since August and particularly in September. So please, caution is the order of the day here.
But if you can stomach the risk, I believe shares may surprise some folks. First off, shares have a PEG ratio of 0.9, which on paper pings it as one of the undervalued stocks at the moment. More importantly, Weight Watchers has a fundamental argument in that millions of us have picked up bad habits. After all, with many worker bees operating from home, the incentive to get up and go in the morning just wasn’t there.
From what I understand, many companies big and small have extended their work-from-home protocol indefinitely. That just means more opportunities to add to the waistline, which ultimately benefits WW stock.
And don’t assume that this is just an American phenomenon. Apparently, the British have also picked up some bad habits. Therefore, the problem is pervasive, which is a good thing for WW stock.
Anheuser Busch (BUD)
From traditional financial metrics, you wouldn’t consider Anheuser Busch among the ranks of undervalued stocks. But on a comparative basis, BUD stock looks awfully enticing relative to competitor Boston Beer Company (NYSE:SAM).
Now, I get why SAM shares have soared. Thanks to its emphasis on quality beer – think the award-winning Samuel Adams (one of my favorites, for full disclosure) – even an economic crisis couldn’t take the sheen off the underlying company. As well, Boston Beer’s pivot to hard seltzers has proven incredibly lucrative.
Also, I should point out that the present recovery from the coronavirus has not been felt equally. According to the August jobs report, communities of color are still reeling from the devastation. Also, the unemployment rate is wildly good (relatively speaking) for educated workers. Thus, we have the very real prospect of a K-shaped recovery: the rich and educated do well and everybody else suffers.
However, I’m not sure if this dynamic is sustainable. Further, Anheuser specializes in both “price-accessible” and premium beers. So, if the economy plummets, look to BUD stock to provide some growth potential as a vice play.
H&R Block (HRB)
Sporting a PEG ratio of 0.44, shares of H&R Block are technically one of the most undervalued stocks to buy. Of course, detractors will argue that HRB stock is undervalued for a reason. For one thing, HRB has been meandering aimlessly since the middle of 2016. And it doesn’t seem like the changes that President Trump pushed for in the tax code has lifted prospects.
Tackle the crisis that we’re in along with the economic uncertainty and you have a less-than-credible case for HRB stock. I understand that. Naturally, this is one of the risker undervalued stocks to consider.
But assuming that we get out of this mess with a somewhat functioning economy, H&R Block will be relevant. I say that because of the pandemic. With most white-collar employees forced to work from home, these people get a real taste of what it’s like working in the gig economy. Unsurprisingly, as the New York Times reported, millions of Americans want the benefits of remote work to be extended.
I can’t speak for every organization, but there will likely be some pushback due to increased non-productivity. Thus, the people who really value the independence of working from their living room will likely make the transition to independent contractors.
In short, those taxes are much more complicated and that will probably lift HRB stock.
Smith & Wesson Brands (SWBI)
Another company that technically isn’t among the undervalued stocks to buy, Smith & Wesson Brands is definitely an investment to consider based on its irrational volatility. Earlier in September, the notorious firearms manufacturer released its quarterly earnings. As you might expect given the present social environment, Smith & Wesson produced a resounding beat.
Did that help SWBI stock? Not in the slightest.
Of course, you’re wondering why. Let’s back up for a moment. In its latest quarter, Smith & Wesson generated $230 million in revenue, representing a shipment of more than 584,000 guns. According to management, that’s a corporate record, which has a history that extends 164 years.
While nominally impressive, I think Wall Street got spooked because investors don’t project that this momentum can continue. They’re wrong. Even today, if you try to buy a gun, it’s standing room only. If you’re not waiting outside for hours, you’re going to wait for inventory and background checks to clear.
Plus, as I explained in my interview with CGTN America, society has fractured in a way that we have never seen before, leading to unprecedented demand for firearms. While cynical, the fundamental case for SWBI stock is as strong as ever.
AMC Entertainment (AMC)
If you think about it, there was a time when AMC Entertainment was the most undervalued company. With a nation under lockdown and non-essential businesses closed to the public, no one went to the movies. And with that circumstance, the cineplex operator made zero revenue (well, $19 million but against a year-ago comparison of $1.5 billion, it might as well be zero) and therefore, no earnings.
Voila! Just like that, AMC falls into this list of undervalued stocks.
To be sure, AMC stock is not for the faint of heart. There is an argument to be made that some of the consumer behavioral shifts catalyzed during the pandemic may be semi-permanent. Further, with companies like Netflix (NASDAQ:NFLX) gaining substantial ground during the crisis, the box office seems irrelevant.
However, please note that when AMC reopened its theaters with its 15-cent price promotion, CEO Adam Aron stated that many of the locations were sold out. This implies significant pent-up demand that could benefit AMC stock once we return to normal.
Furthermore, a movie theater isn’t like an airplane or cruise ship. You can step off if you’re uncomfortable for any reason. Thus, I like AMC as a rebound play, although again, this is a high-risk, high-reward venture.
On the date of publication, Josh Enomoto held a long position in SNE and AMC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.