Warren Buffett famously said that investors should be “fearful when others are greedy and greedy when others are fearful.” With this quote, Buffett was reminding people that stock market declines present an opportunity to buy undervalued stocks of great companies at discounted prices and that the worst time to buy stocks is when the market is booming and shares are sitting at all-time highs.
Buffett has certainly been practicing what he preaches, buying almost no stocks in 2020 and 2021 when markets were surging, but purchasing more stocks than he has in a decade this year as the benchmark S&P 500 index has flirted with entering a bear market, defined as a drop of 20% or more from recent highs.
There are certainly a lot of great companies whose stock looks to be for sale right now with their prices down 15% or more year-to-date as the entire market slumps. These quality stocks are sure to rise again when the market inevitably recovers, providing outsized gains to Warren Buffett and other investors who have the foresight to buy the dip.
Here are seven massively undervalued stocks to buy before they go parabolic:
|FB||Meta Platforms, Inc.||$190.99|
|UPS||United Parcel Service, Inc.||$180.62|
Undervalued Stocks to Buy: Nvidia (NVDA)
Nvidia (NASDAQ:NVDA), the world’s leading semiconductor and microchip company, is seeing its stock down 26.9% this year. At $183.17 per share, it’s currently trading 47% below its 52-week high of $346.47. This presents a great buy the dip opportunity for investors who want to add a fantastic technology company to their stock portfolio that can provide them with long-term gains. Nvidia and other chipmakers have been pulled lower by the exodus out of high-growth technology securities and concerns about supply chain constraints on their near-term growth. But the decline over the past six months does not reflect the long-term prospects for Nvidia.
NVDA stock recently fell more than 5% after the company delivered earnings that beat Wall Street expectations on both the top and bottom lines. However, management lowered their guidance for the remainder of the year. The chipmaker reported earnings per share (EPS) of $1.36 versus the $1.29 that was expected by analysts. Revenue in the first quarter (Q1) came in at $8.29 billion compared to $8.11 billion U.S. that analysts had forecast. However, looking ahead, Nvidia said revenue for the second quarter would be around $8.1 billion, which was less than analyst expectations of $8.54 billion.
Nvidia blamed its deteriorating outlook on Chinese supply chain problems and the war in Ukraine, issues that are expected to resolve themselves in time. Despite the lowered outlook, Nvidia continues to produce strong earnings, has plenty of cash on hand, and remains the bellwether for chip stocks. Get NVDA stock while it’s on sale.
Meta Platforms (FB)
Meta Platforms (NASDAQ:FB) has never been cheaper from a valuation standpoint. The parent company of Facebook, its price-to-earnings (P/E) ratio currently sits at 14.46, which is rock bottom for a mega-cap technology company and lower than the P/E ratios of both McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX). Additionally, the share price of FB stock has declined 43% this year to $190.99 a share.
On Jun. 1 of last year, the stock was sitting at $330 per share. The comedown has been due to a combination of missed earnings, a decline in online advertising, and skepticism about the company’s plans for a virtual world known as the metaverse.
However, Meta Platforms largely redeemed itself with its most recent quarterly earnings, reassuring analysts and investors that its business remains on track and its future is bright. The company reported 1.96 billion daily users for Facebook in Q1, a return to growth after the first-ever decline in the previous quarter. Analysts had estimated 1.94 billion Facebook users. The company’s first-quarter revenue rose 6.6% to $27.9 billion. Net income amounted to $7.47 billion, or $2.72 a share. Analysts had expected earnings of $2.56 per share. FB stock jumped 18% immediately after the Q1 print, but has been unable to hold onto those gains in recent weeks.
While the performance of FB stock can be considered disappointing, it also provides a rare opportunity for investors to grab shares of this leading mega-cap technology stock while its share price is depressed and woefully undervalued.
Undervalued Stocks to Buy: Nike (NKE)
Switching to a retailer now, how about Nike (NYSE:NKE)? The world’s largest maker of athletic shoes and sports apparel has seen its stock pummeled in recent months, down 28.7% year-to-date at $118.81 per share. The fall has been due to concerns about the company’s manufacturing operations in Southeast Asia, where Covid-19 outbreaks in countries, such as Thailand, shuttered some of its plants this past winter. There are also concerns about declining sales in China, where the Swoosh has endured a consumer backlash against Western brands. However, neither of those issues will materially impact Nike’s long-term growth and should be seen as temporary hiccups.
Indeed, Nike has posted better-than-expected financial results over four consecutive quarters and its sales and profit have barely been impacted by the global pandemic that decimated many other retailers. Strong North American demand and a robust online sales platform have helped Nike remain resilient.
In its most recent quarterly print, Nike reported that its sales in North America climbed 9% year-over-year. Net income came in at $1.4 billion, or 87 cents a share. That topped profit estimates for 71 cents per share, according to Refinitiv data. Nike continues to forecast that it can successfully operate in a volatile global environment, estimating that its sales will grow by mid-single-digits in the current quarter. This is one retailer that seems built to win the long race.
Few stocks have been as badly beaten down as e-commerce giant Amazon (NASDAQ:AMZN). The world’s largest online retailer has seen its share price fall 26.4% since the first trading day of the year.
AMZN stock recently made headlines with the revelation that the shares have now given back all the gains made during the pandemic when consumers worldwide relied on the Seattle-based company while sheltering in place at home. The selloff can be blamed on disappointing earnings, as well as concerns about slowing growth coming out of the Covid-19 crisis. However, investors shouldn’t be fooled. Amazon remains a rock solid company, global e-commerce leader, and dominant in every category in which it competes.
Additionally, Amazon is splitting its stock on a 20-for-1 basis on Jun. 6, its first split since 1999. The company has also undertaken a $10 billion share repurchase program that should help to elevate its stock, which currently trades at $2,452.66 per share. Some analysts argue that stock splits are cosmetic and don’t change the underlying fundamentals of a company. However, the upcoming 20-for-1 split by Amazon will make the share price more accessible to retail investors. That alone could lead to increased buying and help to lift AMZN stock in the near-term.
Looking further down the road, investors should remember that Amazon has an enviable track record of delivering shareholder returns. The stock has gained nearly 130% over the past five years.
Undervalued Stocks to Buy: United Parcel Service (UPS)
United Parcel Service (NYSE:UPS) is the biggest courier and shipping company in the world. And business is booming thanks to the growth and maturity of the e-commerce industry.
Sandy Springs, Georgia-based UPS rode the e-commerce boom to exceptional results in this year’s Q1. At the end of April, the company reported Q1 adjusted earnings of $3.05 per share, compared with average analysts’ expectations of $2.88 a share. Revenue for the quarter totaled $24.4 billion, beating analysts’ expectations of $23.78 billion. UPS reaffirmed its full-year revenue forecast of about $102 billion during its conference call with analysts following the Q1 print.
UPS said that its business is also gaining from a sharpened focus on industries that generate more revenue and profit, such as healthcare companies and small- and medium-sized businesses. Yet, despite the company’s success in a difficult operating environment, UPS stock is down 17.2% this year at $180.62 a share. Additionally, it is down 22.7% from its 52-week high of $233.72.
As concerns grow that the global economy may fall into a recession later this year as interest rates rise to combat inflation, UPS’ share price has slumped. However, the company has proven to be resilient over the past few years and there’s no reason for investors to doubt UPS, or its share price, going forward.
Seattle-based Microsoft (NASDAQ:MSFT) is another mega-cap technology company whose stock looks cheap at current levels. Down 19% so far in 2022, MSFT stock is now changing hands at just under $275 a share, which is 22% below its 52-week high of $349.67. Microsoft’s P/E ratio is also sitting at 28.4, which is slightly above the average P/E ratio of 25 among companies listed on the technology laden Nasdaq index. At its current share price and valuation, Microsoft’s stock looks like a steal. And there’s no reason for the decline this year other than the company’s share price being pulled lower with the entire market. On paper, Microsoft continues to fire on all cylinders.
The company’s most recent quarterly results showed that Microsoft earned $2.22 per share, which was above the $2.19 that Wall Street expected. Revenue increased 18% to $49.36 billion, which was also above the $49.05 billion anticipated. Particularly impressive, Microsoft’s fast growing cloud computing segments posted impressive growth, with the Intelligent Cloud segment generating $19.05 billion in revenue, up 26% from a year earlier. The company just needs to complete its $68.7 billion purchase of video game developer Activision Blizzard (NASDAQ:ATVI), the biggest deal in its 47-year history.
Undervalued Stocks to Buy: Morgan Stanley (MS)
In theory, stocks of banks and financial institutions should be riding high right now. With interest rates rising sharply around the world to cool off overheated inflation, banks are poised to rake in record profits as they can charge higher rates on products ranging from mortgage loans to credit cards. But that theory has not been playing out for banks and other lenders as fears of a recession and slower consumer spending lead investors to shun financial stocks, such as investment bank Morgan Stanley (NYSE:MS). This year, MS stock has pulled back 13% to now trade at $85.10 per share. With a P/E ratio of 10.83, the stock looks to be at fire-sale prices right now.
The decline in MS stock has happened despite the company reporting strong revenue from equity and fixed income trading during this year’s extremely volatile market. The Wall Street bank’s Q1 earnings showed that it earned $3.2 billion of revenue, handily beating the $2.7 billion expected by analysts. Revenue generated from fixed income totaled $2.9 billion, also topping consensus estimates of $2.2 billion.
Bull market or bear, Morgan Stanley can’t seem to lose. Investors looking to give their portfolio some exposure to financial stocks would be smart to pick up some shares of MS stock.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT and MS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.