- Below are some of the top undervalued stocks to buy while the sector is weak.
- Palantir (PLTR): Its strong leadership and revenue growth will deliver results.
- PayPal (PYPL): It has been beaten into the ground, but its great fundamentals will prevail in the end.
- Roku (ROKU): The growth story is not dead yet, despite semiconductor worries.
- Upstart (UPST): This wild stock deserves another chance.
- iShares Russell 2000 ETF (IWM): Bet on the whole shebang with an ETF that covers the entire Russell 2000.
- Direxion Daily Small Cap Bull 3X Shares (TNA): If that’s not enough, then triple up on the basket — with caution.
- Tenet Healthcare (THC): It got a boost from the pandemic and could stay strong.
Last week, investors had whiplash if they were trying to actively trade the market. Wall Street showed extreme fear for most of the week, but ended with a ferociously bullish Friday. But when the going gets tough, the smart get to shopping. So let’s look at some excellent undervalued stocks to buy.
First, you need to consistently look for quality business models. And remember, this week may be just as violent as last week. Several Federal Reserve leaders are scheduled to speak, including Fed chairman Jerome Powell. In addition, this will be a monthly options expiration on Friday. They tend to bring extra drama.
Meanwhile, it’s important to keep a cool head and go on with the homework. Many of these stocks have been punished hard in 2022. Catching these falling knives qualifies as risky behavior. Therefore investors must use common sense and not excessive size.
If we continue correcting later this week, even the best ideas will temporarily fail. Therefore I continue to preach moderation and flexibility. But if things recover, here are some undervalued stocks
|IWM||iShares Russell 2000 ETF||$182.77|
|TNA||Direxion Daily Small Cap Bull 3X Shares||$42.55|
In the past few years, the world changed in a big way for many businesses, including Palantir (NYSE:PLTR). And this is the case where the market just recently came to them. The deployment of artificial intelligence has developed from a novelty to a necessity for most businesses as they digitize their operations. The more data we have, the less likely it is that humans will be processing it.
Therein comes the opportunity for companies like PLTR.
The management team have earned their kudos. Therefore I’m willing to give them the benefit of the doubt for now. This is especially true because of the growth they are delivering. In the latest quarter, PLTR stock saw 31% revenue growth, with U.S. commercial revenue growth of 136%. Of late, the criticism is over weakness in the government side of the revenues — growth there came out to just 16% last quarter. However as long as they are growing to overall basket, it should not be a concern.
Companies that can adjust their sales mix show their adaptability. This is a stock I would own for the long term, especially on weakness. The lows from last week were a great opportunity. It’s not too late yet, but definitely don’t go all in here.
PayPal (NASDAQ:PYPL) has been suffering exceptionally bearish price action lately. PYPL stock has lost more than half of its value year to date and two-thirds in the past year.
The business is nowhere near dying, but it’s acting like it.
PayPal continues to grow its sales, and pretty profitably too. The company grew revenue 8% in the first quarter, even though earnings fell significantly. And in 2021, it generated $6 billion in cash from operations. And because of the seriousness of the correction in PYPL stock, it has become cheap from all perspectives. This successful high-growth business carries a humble 26 trailing price-to-earnings ratio.
In the long run, PayPal stock will deliver profits for those brave souls who try to catch this falling machete.
Roku (NASDAQ:ROKU) it is now a successful business, but its growth is hampered by the global chip shortage. Even though it hasn’t shown a real significant slowdown, experts fear the future impact on its results.
So far this has put the brakes on Roku stock. But in the end, the worrywarts will understand that their level of concern was too excessive. Total revenues last year still grew 55% to $2.765 billion, and cash from operations grew even more.
There is no apparent slowdown yet, so this negativity makes no sense.
The buyers will come back towards Roku stock as long as the profit and loss statements continue to be this strong. Last week, the price action showed the willingness to bounce off the March 2020 lows. Perhaps the sellers are gathering some courage.
Upstart (NASDAQ:UPST) moves faster than most other stocks I’ve seen this year. After it reported earnings, the stock lost more than half its value in minutes. This is in spite of them growing their sales by 156%.
There were specific concerns about potential defaults and loan volume. Revenue guidance for 2022 dropped from $1.4 billion to $1.25 billion. As a result, investors imagined the worst-case scenario that could happen from defaults. This is merely a concern, not a reality yet, so it could be a mistake.
Investors can speculate on this fast-growing company at these levels for a potential pot of gold. I don’t expect the old highs to return, but the truth will probably be found somewhere in the middle. If that’s the case, there’s tremendous upside with time. I imagine that if management allays the fears over the loan defaults, UPST stock will soar.
iShares Russell 2000 ETF (IWM)
Expense Ratio: 0.19%, or $19 per $10,000 invested annually.
Instead of picking individual winners and losers, investors can choose to chase the whole gang. The iShares Russell 2000 ETF (NYSEARCA:IWM) stock is the exchange-traded fund (ETF) that trades the Russell 2000 basket of small-cap stocks.
Small-caps have been hit especially hard as a sector, and there could be a lot of profit when it rebounds. The advantage of using this instead of picking specific companies is that it would eliminate the single-stock headline risk. So investors would only need to guess in general terms.
The fundamentals for this are cumulative, so they are neither a selling point nor a detriment. The entire index is represented in the ETF. Therefore my decision here would be purely technical. The IWM ETF last week came within inches of touching the November 2020 breakout. Odds are there will be buyers lurking in that vicinity.
If we have another market-wide dip this week, it could flush out the rest of the sellers. What we are looking for is a washout moment to capitulate the masses and allow for a true bottom.
Direxion Daily Small Cap Bull 3X Shares (TNA)
Expense Ratio: 1.05%
For investors who are extremely active, they might want to consider the IWM but on steroids. That honor would go to the Direxion Daily Small Cap Bull 3X Shares (NYSEARCA:TNA). The TNA tracks the IWM, but moves three times faster in the same direction. So if the current volatility is too tame for your taste (hard to believe that is even possible), then this one might be for you.
The direction of the moves will be 100% consistent with what we’ve see from the IWM. The magnitude, on the other hand, would be three times larger. If you are right, you are right three-fold, and vise versa.
I’ve used them before but with very specific breakout paths. This is not intended as a long-term holding.
In this case, I would not consider deploying this one until I clearly see specific reason. Accuracy is important, so I would need the precise levels of my price accelerators.
Tenet Healthcare (THC)
In spite of the underperformance among smaller stocks, Tenet Healthcare (NYSE:THC) stock is still doing well. While it is off 25% from its highs, the bulls are still in charge. It broke out from the 2018 highs and never looked back.
The mark to beat was $40 per share, and THC stock is still miles from it. If the smaller stocks find footing then THC should continue to outperform. The P&L shows consistent strength and the lack of bloat. This leaves very little for concern. While the revenue lines lack explosive growth, the net income shows strong improvements. THC swung from losses until 2019, to a trailing-12-months mark of $957 million. Their cash from operations also continues to improve.
It looks like the pandemic was a boost to their financials, and that boost may be lingering still. Technically there is support at $68 per share and more $4 lower. The bears will need special headlines to break through those levels.
On the date of publication, Nicolas Chahine 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.