While stock markets rose in the first half of the year, it has not been a broad-based rally like we experienced in 2020. While some stocks have broken out and had huge rallies this year, many other stocks have struggled. Companies that enjoyed huge growth in their share price last year have given back much of their gains in recent months. While many stocks look overvalued at current levels, there are still plenty of stocks that are extremely undervalued. And a lot of those undervalued stocks are of big names.
These are companies that have great long-term potential but whose share price has stagnated over the short-term for a variety of reasons. In this article, we look at seven undervalued stocks for investors to buy in July as we head into the second half of 2021.
- Apple (NASDAQ:AAPL)
- Advanced Micro Devices (NASDAQ:AMD)
- Zillow (NASDAQ:Z)
- Draftkings (NASDAQ:DKNG)
- Southwest Airlines (NYSE:LUV)
- Chewy (NYSE:CHWY)
- Disney (NYSE:DIS)
Undervalued Stocks to Buy: Apple (AAPL)
It’s starting to move now, but Apple stock hasn’t done much of anything for most of this year, or really since the shares split on a four-for-one basis at the end of last August. After hitting a peak of $145.09 in late January, AAPL stock was trading in a range of $120 to $130 throughout the first half of 2021. The shares seemed incapable of breaking out despite the company’s 5G-enabled iPhone 12 ushering in a new super sales cycle, and Apple continuing to report extremely strong earnings.
In its latest earnings report, the Cupertino, California-based technology company reported fiscal second-quarter sales of $89.6 billion, up 54% from a year earlier. Analysts had expected revenue of $77.3 billion in the quarter. Apple’s quarterly profits came in at $1.40 a share, also topping Wall Street forecasts.
However, despite the stellar results, AAPL stock barely budged on the news. Fortunately, the stock is now starting to breakout, rising 12.6% in the past month to just over $140 per share. Year-to-date, the stock is up 7%.
Advanced Micro Devices (AMD)
The other semiconductor company, Advanced Micro Devices, is a technology company that is finally starting to move after being seriously undervalued in this year’s first half. Year-to-date, AMD stock is down a slight 2% at its current price of about $90 a share. And that’s after a 10% gain in the past month. Shares are now at the same level they were at in January. AMD has certainly been trading at a discount to its main rival Nvidia (NASDAQ:NVDA), whose stock has rallied 52% year-to-date.
AMD stock has been hurt by the current semiconductor shortage as it has struggled to keep up with demand in the two key areas in which it competes, computer graphics and enterprise chips. The company has also had a cloud hanging over it while it awaits regulatory approval of its $35 billion acquisition of fellow semiconductor chipmaker Xilinx.
The deal is now in the hands of Chinese regulators after it received approval from the European Commission and United Kingdom government. Once finalized, the Xilinx deal should help to propel AMD to new heights. At 1.44, AMD stock has one of the lowest price-to-earnings-growth (PEG) ratios in the semiconductor industry.
Undervalued Stocks: Zillow (Z)
There’s currently a housing boom going on in both the U.S. and Canada as people move out of urban centers and look to increase their housing footprint in the suburbs and countryside. So why is it that the stock of Zillow, the largest online real estate marketplace in the U.S., is down 12.5% year-to-date and is currently trading at $113.70 per share?
Caught in the rotation out of technology-based stocks and into cyclical securities, Z stock is now 45.5% below its 52-week high of $208.11 a share. As housing prices across the U.S. have risen coming out of the pandemic, Zillow stock has declined.
If there’s a silver lining for Zillow shareholders, it is that analysts seem to feel the stock bottomed at $107 a share and is now slowly starting to recover. Hurting Z stock this year has been the fact that the company is undergoing a major transformation of its business as it tries to move the entire home selling and buying experience online. Zillow’s approach, which relies heavily on its app, is also seriously disrupting the real estate brokerage and realtor market, which has shaken confidence in the stock.
Despite it status as a disruptor, many industry observers see great things ahead for Zillow over the long-term.
What’s it going to take to light a spark under DKNG stock? With professional and amateur sports back and stadiums filling with fans again, DraftKings share price was expected to skyrocket. But at $48.46, the stock currently sits 34.8% below its all-time high, reached in March, of $74.38 per share.
The stock spent most of June hovering right around $50 a share. This, despite the fact that analysts expect the stock of the online sports-betting company to retest its 52-week high of $74.38. The high target on the stock is $105 per share. The median price target would represent a 52.6% gain from the current share price.
While most analysts continue to believe that DraftKings has a great long-term opportunity ahead of it, DKNG stock has been hurt in the short-term by a number of negative reports from various traders who hold short positions and are betting that the stock price will go down. The negative accusations include charges of illegal gambling activity and doing business in Iran, which is not allowed for U.S.-based companies. Short-sellers have a vested interest in trying to push the share price lower, and their comments should be viewed skeptically.
While it is true that competition is growing in the online gambling sector, DraftKings continues to hold a market-leading position. Perhaps the shares will finally start to rally once the NFL football season returns this fall?
Undervalued Stocks: Southwest Airlines (LUV)
Dallas, Texas-based Southwest Airlines is the biggest low-cost carrier in the world, and it flies more domestic passengers than any competing U.S. airline. S0, you would think that Southwest Airlines stock would take off this summer as vaccinated Americans begin flying for vacation and to see family members. But think again.
In June, LUV stock fell 8% and is down 16% since the start of April. At its current level of $51.17 a share, Southwest Airlines is still up 10% year-to-date, but the stock has struggled through the spring and heading into the summer travel season.
The main problem afflicting Southwest Airlines operations and depreciating its share price is a raft of recent flight cancellations. As flight bookings have come roaring back in recent months, Southwest has struggled to get its operating schedule running smoothly. The main issue has been a staffing shortage, notably of pilots. Over 600 Southwest pilots took early retirement packages that were offered to them during the pandemic in 2020. Hundreds of other pilots took voluntary leave. Now, Southwest Airlines is struggling to staff enough pilots, many of whom need refreshed training to be certified to fly again.
As a result of the shortages, Southwest Airlines canceled 2,687 flights in June, an average of about 90 flights each day. More than 34,000 of the carrier’s flights were delayed during the month. While the problem has been quite bad in recent weeks, Southwest Airlines insists the staffing shortage is a short-term problem. Most analysts seem to agree that investors should buy the dip in LUV stock and start a position while the shares are undervalued.
Chewy, an online retailer of pet food and pet-related products, was a much hyped stock in 2020. As more people got pets during the pandemic and were forced to shop online, CHWY stock benefited greatly. Last year, the company’s share price gained 270% and was a top performer. But after peaking at an all-time high of $120 a share in mid-February this year, Chewy’s stock has come down 34% and now changes hands at just $79 a share. It’s been a steep fall for a former Wall Street darling.
The thumping of CHWY stock has come despite the company reporting two consecutive quarters of better-than-expected earnings and the company revising its guidance upward. At the end of this year’s first quarter, Chewy had just under 20 million customers, a 32% year-over-year increase. Each customer spends, on average, $388 with Chewy, a 9% increase from the same period of 2020. In terms of forward guidance, Chewy now says that its revenue for all of this year will come in right around $9 billion, which is 26% higher than its previous estimate.
Given the positive earnings and outlook, Chewy shares look like a bargain at their current level. The median price target on the stock is $99, suggesting 25.4% upside from here.
Undervalued Stocks: Disney (DIS)
Expectations were high for Disney’s stock when it broke through the $200-a-share level in early March. But after cresting at $203.02 a share, DIS stock has pulled back 15.4% and now trades at $171.81 per share. Year-to-date, the stock is down about 5%. Since May, the share price has been shifting between $175 and $178, and seems incapable of breaking above $180 and making another run at $200.
DIS stock has been in a funk ever since the company’s Disney+ streaming service began to experience slowing growth. After adding more than 100 million subscribers in less than 18 months, Disney+ has inevitably begun to cool off coming out of the pandemic. However, the Mouse House still says that it can reach 260 million monthly subscribers by 2024, which would outpace competitor Netflix (NASDAQ:NFLX). People also seem to be forgetting that Disney’s theme parks and cruise lines are returning to operations this summer.
Perhaps Disney can give its stock a jumpstart by reinstating the dividend that it suspended in 2020 to conserve cash during the pandemic? The median price target on DIS stock is $212 a share, implying future growth of 23.4%.
Disclosure: On the date of publication, Joel Baglole held long positions in AAPL, Z, DKNG, LUV and DIS . The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.