In his book The Intelligent Investor, Benjamin Graham brings up the concept of generating returns by investing in undervalued stocks. These are stocks that trade below their true value for a multitude of reasons.
While some stocks may never recover from their lows, other poor-performing stocks are worth buying on the dip. It might take a little extra effort, to tell them apart, but the extra effort will be worth it. The ability to identify these stocks and hold on to them for long-haul can result in some fruitful gains.
The tricky part lies in figuring out which stocks are undervalued at their current price. Some stocks, especially as we look forward to an eventual recovery, might merely need a little more time to fully grow into their value in other investor’s eyes. Snapping them up before that is key.
With the market sentiment largely bearish right now, here are 3 undervalued stocks that are great long-term plays.
Undervalued Stocks: BP Plc (BP)
Last year was a tough year for the oil sector as demand and supply forces forced prices into negative territory.
For industry big-wigs like BP, the pandemic and its consequences were detrimental to its bottom line.
In its previous quarter, the company reported its first annual loss in more than a decade. Profits fell by 96% from $10 billion in 2019 to -$5.7 billion in FY20. As expected shares fell by 3% following the announcement. Stocks like BP may seem like a bad bet, but changing trends in the industry hint at a brighter future.
BP’s push into the green energy market is gaining steam as more countries take greater initiative to tackle climate change. The company has pledged to go carbon neutral by 2050 and has invested more than $1.1 billion in clean energy projects in Europe and the U.S.
British Prime Minister Boris Johnson has also expressed interest in making the U.K. the leader in wind energy. BP is among the companies chosen to make this goal a reality. As oil prices remain in limbo, BP’s shift to green energy will serve as a long-term tailwind for the company.
Restaurant Brands International (QSR)
With restaurant doors shut for much of last year, the food and beverage (F&B) industry was caught in the headwinds of the Covid-19 pandemic.
Unexpected circumstances often may pave the way for new ideas and innovation. This is exactly what happened to many restaurateurs as they took their business digital.
Major F&B brands such as Tim Hortons and Burger King made the seamless transition under the helm of its parent company Restaurant Brands International.
The pandemic served a major blow to restaurants but RBI turned a period of downturn into an opportunity. The company adopted aggressive growth strategies as it took its three major businesses digital.
It even continued to expand its physical presence in China with additional outlets in the region. Analysts believe these investments will generate some juicy returns in the long-term.
RBI’s digital initiatives efforts have paid off. In its most recent quarter, the company reported an increase in digital sales to $6 billion.
RBI’s resilience in the face of a global pandemic makes this one of the best undervalued stocks to hold on to for the long-haul.
Wells Fargo (WFC)
A series of scandals continue to impact Wells Fargo as the bank operates under the asset cap mandated by the Federal Reserve.
Although stocks in the banking industry are on an upward trajectory since the November election, Wells Fargo is still lagging behind its peers.
At its current price, all arrows point toward a poor future performance for the company but a closer look reveals hidden underlying value. Many analysts expressed bullish sentiments towards WFC stock with Morningstar and Seeking Alpha giving it a favorable rating.
Wells Fargo may not be at its best right now but it has a lot going for it in the long-haul. For instance, the company has outlined a detailed plan to cut costs by $8 billion. $3.7 billion of this cost-cutting will be done in 2021.
Moreover, WFC also has a massive restructuring plan underway which includes $600 million in stock repurchases. This will help improve the rate of return for shareholders.
Despite its history of scandals sentiment toward the stock is optimistic with some analysts giving it a price target of $42.
WFC is not in a great position right now, but once its overhaul plans are put into action, it has the potential to become one of the best undervalued stocks on the market.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.