Undervalued stocks are getting Wall Street’s attention after rapid declines seen in 2022. The market correction has been particularly noteworthy for the tech-heavy Nasdaq 100, down almost 10% year-to-date (YTD). As a result, there are now bargains to buy high-quality shares at a discount. Against this backdrop, this article discusses seven undervalued stocks to consider after the sell-off.
Recent research by Baruch Lev of the Stern School of Business, New York University, and Anup Srivastava of the Haskayne School of Business, University of Calgary, highlights, “Value investing is about finding diamonds in the rough by going long on low-valued (“value”) stocks… The value investment strategy yielded excess (abnormal) returns for decades…”
Therefore, the recent drop on Wall Street has pushed robust names to prices not seen in many months. Today’s list of undervalued stocks could primarily appeal to those investors looking for value-style growth names with solid fundamentals.
With that said, here are seven undervalued stocks to buy that have significant potential to beat the market in 2022.
- Coinbase Global (NASDAQ:COIN)
- General Motors (NYSE:GM)
- HP (NYSE:HPQ)
- Netflix (NASDAQ:NFLX)
- Qualcomm (NASDAQ:QCOM)
- Western Digital (NASDAQ:WDC)
- Zoom Video Communications (NASDAQ:ZM)
Undervalued Stocks: Coinbase Global (COIN)
52-week range: $162.20 – $429.54
Crypto exchange Coinbase Global went public in April 2021. Since its launch a decade ago in June 2012, it has reached about 75 million users. Coinbase generates the bulk of its revenue from transaction fees on digital assets. While Bitcoin (BTC-USD) is the most important crypto for the company, traders have access to around 50 digital assets.
Recent metrics suggest that around half of global trading in Bitcoin happens on Coinbase. Meanwhile, non-fungible token (NFT) enthusiasts are excited that Coinbase plans to launch an NFT platform soon.
The company released third-quarter 2021 results in early November. Revenue soared 330% year-over-year (YOY) to $1.23 billion. Net income increased to $406 million, or $1.62 per diluted share, up from $81.3 million in the prior-year period. Cash and equivalents ended the quarter at $6.4 billion.
With a market capitalization of over $50 billion, Coinbase Global is likely to grow more in the coming years. Moreover, Comparably has ranked Coinbase 24th in its “Top Brands for Millennials” list. In other words, the exchange has a significant first-mover advantage in terms of brand recognition.
COIN stock currently trades at around $200, down 21% YTD. It has shed more than half their all-time high (ATH) value due to the sell-off in the crypto market. Shares trade at 28.17 times forward earnings and 7.4 times trailing sales.
Meanwhile, the 12-month median price forecast for Coinbase stock stands at $346. Investors, who would like to participate in the growth of the crypto space but do not want to buy digital assets directly, could consider around current levels.
General Motors (GM)
52-week range: $47.07 – $67.21
Recent metrics show ” The auto industry accounts for 3% of America’s GDP.” And the legacy automaker General Motors holds the top spot among among car manufacturers stateside. Its market share is around 15%.
GM issued Q4 2021 results on Feb. 1. Revenue declined 10% YOY to $33.6 billion. Net income stood at $1.74 billion, or $1.16 per diluted share, down from $2.85 billion, or $1.93 per diluted share, a year ago. Meanwhile, adjusted automotive free cash flow brought in $6.40 billion, compared to $3.43 billion last year.
Management forecasts semiconductor supply issues to improve through 2022, leading to higher production levels. As a result, the automaker predicts full-year 2022 net income to come in between $9.4 billion-$10.8 billion.
Analysts point out to GM’s strong long-term growth potential thanks to the pipeline of electric vehicles (EVs) and autonomous vehicles. For instance, new EV models built on GM’s flexible Ultium EV platform are expected to arrive this year.
Meanwhile, the auto group has started deliveries of its Hummer EV pickup and BrightDrop EV600 vehicles. Additionally, its Cruise subsidiary has secured almost all required permits to launch a robo taxi service in California.
GM stock currently sells for $50, down 14% over the past 12 months. Despite significant growth potential, shares are trading at a cheap valuation of 7.15 times forward earnings and 0.6 times trailing sales.
The 12-month median price forecast for General Motors stock is $75. Interested readers could consider buying GM shares in February.
Undervalued Stocks: HP (HPQ)
52-week range: $25.96 – $39.65
Working-from-home put a number of stocks, such as HP, in the limelight. Most InvestorPlace.com readers would know that as one of the largest manufacturers of PCs, printers, and relates supplies, HP enjoys a strong business.
The consumer tech group released Q4 2021 results on Nov. 23. Revenue increased 9.3% YOY to $16.7 billion, beating estimates by $1.3 billion. Non-GAAP net earnings grew 29% YOY to $1.1 billion, or 94 cents per diluted share, compared to $0.8 billion, or 62 cents per diluted share, a year ago.
On the results, CEO Enrique Lores remarked, “We delivered a very strong quarter to close out an exceptional year of double-digit revenue, operating profit and EPS growth while returning record levels of capital to shareholders.”
In fiscal 2021, management returned $7.2 billion to shareholders in dividends and share repurchases. Passive income seekers would be interested to know that the stock currently yields a generous 2.6%.
HPQ shares change hands at $38, up 39% over the past 12 months. They are trading at 8.9 times forward earnings and 0.7 times trailing sales.
Analysts’ 12-month median price forecast for HP stock stands at $36.95. Given the impressive returns in the past year, potential investors could wait for a pullback toward $35, or even below.
52-week range: $351.46 – $700.99
In a given earnings season, Wall Street pays close attention to a number of companies in different segments. One of these names is the global streaming giant Netflix, rated as one of the “Most indispensable subscription video-on-demand (SVOD) platforms” stateside. In recent years, Netflix has also put considerable resources into creating original content.
The SVOD platform announced Q4 2021 results on Jan. 20. Revenue increased 16% YOY to $7.7 billion. Net income soared 12% YOY to $607 million, or $1.33 per diluted share, compared to $542 million, or $1.19 per diluted share, a year ago.
Management reported 8.3 million new memberships, which failed to meet the previous guidance. Fierce competition from peers, such as Walt Disney (NYSE:DIS), is taking its toll on its subscriber growth.
Analysts were also concerned that the company burned through $569 million cash through the quarter. Meanwhile, cash and equivalents ended the period at $6 billion.
In summary, Netflix finished 2021 with 221.84 million paid subscribers, up 8.9% YOY. Management now anticipates 2.5 million net new additions for the first quarter in 2022, compared to the 4 million it reported in the prior-year quarter.
Post earnings, the rapid correction in NFLX stock has been significant. It currently hovers around $395 territory, down 28% over the past 12 months. Shares are trading at 36.9 times forward earnings and 6.2 times trailing sales.
The 12-month median price forecast for Netflix stock stands at $500. As there could be a rebound in the share price soon, NFLX stock deserves your attention.
Undervalued Stocks: Qualcomm (QCOM)
52-week range: $122.17 – $193.58
As the largest wireless chipmaker worldwide, Qualcomm is well-known for its flagship Snapdragon system-on-chips. Wall Street concurs that this semiconductor name will be one of the winning stocks of the ongoing 5G upgrade cycle. In addition, secular growth in industrial markets, connected vehicles, and the Internet of Things (IoT) segment should provide tailwinds.
Qualcomm issued Q1 FY22 results on Feb. 2. Top line number increased 30% YOY to $10.7 billion. Net income grew 47% to $3.7 billion, or $3.23 per diluted share, up from $2.5 billion, or $2.17 per diluted share, in the previous year. Cash and equivalents ended the period at $6.6 billion.
On the results, CEO Cristiano Amon remarked, “We are at the beginning of one of the largest opportunities in our history, with our addressable market expanding by more than seven times to approximately $700 billion in the next decade.”
Investors were pleased that smartphone chip sales for new 5G devices increased 42% YOY. Moreover, the IoT and automotive revenue increased 41% and 21% YOY, respectively.
For the second quarter, management anticipates YOY revenue growth between 29% and 39% and adjusted earnings per share (EPS) growth between 47% and 58%.
QCOM stock is currently priced at $170, 17% over the past 12 months. Despite its growing addressable market, QCOM trades at a discount to its peers at 15.02 times forward earnings and 5.53 times trailing sales. The 12-month median price forecast for Qualcomm stock stands at $220.
Western Digital (WDC)
52-week range: $48.62 – $78.19
In the data storage space, Western Digital gets investors’ attention. It develops hard disk and solid-state drives. The group has benefited from the digitalization move of the pandemic months.
For instance, as enterprises migrate into the cloud, its NAND flash solutions become important. In general, Western Digital also benefits from rollouts of gaming consoles.
The tech group announced fiscal Q2 FY22 results on Jan. 27. Revenue went up by 23% YOY to $4.83 billion. Net income was $724 million, or $2.30 per diluted share, up from $212 million, or 69 cents per share, a year ago.
Cash and equivalents ended the quarter at $2.53 billion. Investors noted the ongoing cost reduction efforts. Management anticipates Q3 revenues of $4.45 billion to $4.65 billion and non-GAAP EPS of $1.50 to $1.80. Meanwhile, Wall Street expects supply constraint issues to start easing during the year.
WDC stock currently hovers around $55 territory, down 10% over the past 12 months. Shares have an inexpensive valuation at 6.6 times forward earnings and 0.9 times trailing sales. The 12-month median price forecast for Western Digital stock is $73.50. Interested readers could find value in WDC stock around these levels.
Undervalued Stocks: Zoom Video Communications (ZM)
52 week range: $134.70 – $451.77
During the pandemic, one of the companies that became a household name was Zoom Video Communications. The video conferencing and online communications group was launched in 2011, and went public in April 2019.
Zoom reported Q3 FY22 results on Nov. 22. Revenue went up by 35% YOY to $1.05 billion. Non-GAAP operating margin was a solid 39.1%. Net income came in at $338.4 million, or $1.11 per diluted share, up from $297.2 million, or 99 cents per diluted share, in the prior-year period. Cash and marketable securities ended the quarter at $5.4 billion.
Wall Street noted that subscribers contributing at least $100,000 in trailing-12-month revenue nearly doubled YOY to 2,507. Meanwhile, the communications group is increasingly focused on reaching small-and medium-sized firms.
In the announcement, management remarked, “Looking forward, we expect to close the year between $4.079 to $4.081 billion in total revenue, representing approximately 54% year-over-year growth, alongside strong profitability and operating cash flow growth.”
ZM stock changes hands $145, down 66% over the past 12 months. Shares trade at 31.6 times forward earnings and 11.3 times trailing sales.
Meanwhile, analysts’ 12-month median price forecast for Zoom stock is $253. Despite the potential slowdown in growth metrics in future quarters, the company could find itself an acquisition target.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.