Even after the recent correction, the S&P 500 Index trades at a cyclically adjusted price-to-earnings-ratio of 32.5. However, the broad market valuation does not imply that there are no undervalued stocks. Warren Buffett has been on a shopping spree in first-quarter 2022. With several overlooked value stocks, it’s a good time to accumulate.
I must add that the markets face multiple headwinds. Inflation has been a concern and with aggressive rate hikes on the cards, liquidity tightening has translated into negative sentiments. Also, there is a possibility of recession in 2023.
However, even with these headwinds, some overlooked value stocks are in the buying zone. I would gradually accumulate these stocks over the next few months.
I believe that these overlooked value stocks that can deliver robust returns for the portfolio. On a conservative basis, I believe that these stocks can double in the next 18 months – 24 months.
| RADA | Rada Electronic | $11.87 |
| HIVE | Hive Blockchain | $4.04 |
| LI | Li Auto | $25.23 |
| RDWR | Radware | $24.59 |
| ARVL | Arrival | $1.6989 |
| RIG | Transocean | $4.125 |
| KGC | Kinross Gold | $4.455 |
Rada Electronic (RADA)
With rise in geo-political tensions, it’s important to have few defense stocks in the portfolio. Among smaller names in the industry, Rada Electronic (NASDAQ:RADA) is worth considering.
As an overview, Rada focuses on the tactical radar market for the global defense industry. The company believes that there is a total addressable market of $6 billion.
In terms of growth, Rada reported revenue of $44 million for 2019. For the current year, the company expects revenue to swell to $140 million. Furthermore, the company’s adjusted EBITDA margin was 13% in 2020 and it expanded by 1,000 basis points to 23% in 2021.
For Q1 2022, Rada reported $29 million in new business orders. The order intake increased by 22% on a year-on-year basis. As the backlog increases, the company is well positioned for sustained revenue and EBITDA growth.
Overall, RADA stock is among the overlooked value stocks. Multi-fold returns in the long-term seems like a possibility.
Hive Blockchain (HIVE)
Among crypto stocks, Bitcoin (BTC-USD) miners like Marathon Digital (NASDAQ:MARA) or the Coinbase (NASDAQ:COIN) trading platform have been in focus.
However, Hive Blockchain (NASDAQ:HIVE) is another quality stock that overlooked. With the correction in Bitcoin and weak market sentiments, HIVE stock has plunged by 80% in the last six-months. I believe that it’s a good opportunity to accumulate.
For Q3 2021, Hive reported revenue growth of 397% to $68 million. During the quarter, the company mined 697 Bitcoin and 7,126 Ethereum (ETH-USD).
For 2022, Hive expects to increase Bitcoin mining capacity to 3EH/s. Further, Ethereum mining capacity is expected to 6 tera-hash. With more miners to be deployed, there is clear growth visibility for the diversified miner.
Hive also has a healthy balance sheet with $63.7 million in cash and equivalents (excluding digital currencies). Additionally, the value of the company’s long-term investments is $26.7 million. With investments in decentralized finance and NFTs, the company’s growth outlook seems bright.
Li Auto (LI)
Among Chinese electric vehicle stocks, Li Auto (NASDAQ:LI) is the least talked about. However, Li stock has been an out-performer as compared to Nio (NYSE:NIO) and XPeng (NASDAQ:XPEV). Once temporary headwinds for the electric vehicle industry are navigated, Li stock is likely to break-out on the upside.
Li Auto commenced mass delivery of its first model, Li ONE in November 2019. The upgraded version of the same was launched in May 2021. With just one model, the company has continued to report robust growth in vehicle deliveries. The company has also pursued aggressive store expansion in China.
One reason to like Li Auto is the fact that the company has been reporting positive operating and free cash flows. For Q1 2022, the company reported OCF of $289.3 million. This implies an annualized OCF potential of $1.2 billion.
Li Auto also has a robust cash buffer (unrestricted cash) of $5 billion. With ample flexibility for new model development, the company has a clear growth visibility.
Radware (RDWR)
Radware (NASDAQ:RDWR) is another interesting name among overlooked value stocks. RDWR stock has been an under-performer with a downside of 18% in the last six-months. However, at a forward P/E of 29, the stock looks attractive for accumulation.
As an overview, the company is in the business of cyber security and application delivery solutions for physical, cloud, and software defined data centers. With an increase in cyber attacks globally, Radware has a strong growth visibility. The company believes that its core addressable market is likely to be $13.5 billion by 2025.
It’s also worth noting that the company’s revenue has grown at a CAGR of 39% between 2016 and 2021. Also, for Q1 2022, the company reported 68% in recurring revenue. This provides clear top-line visibility. Furthermore, with sustained growth in free cash flows, the stock seems attractive after a correction.
The company’s revenue from Americas declined by 12% on a year-on-year basis for Q1 2022. However, revenue from Europe and APAC increased by 33% and 34% respectively for the same period. With wider geographical diversification, growth is likely to sustain.
Arrival (ARVL)
Arrival (NASDAQ:ARVL) is among the high-risk stocks that I would consider after a plunge of 90% in the last 12-months. The company is focused on development of commercial electric vehicles. This includes electric delivery van and buses.
One reason to be hopeful about Arrival is the company’s order backlog. Currently, the company has non-binding letter of intent and orders for 143,000 vehicles. A large part of the order is for electric delivery vans.
Arrival expects van production to begin in in Bicester in Q3 2022 and in Charlotte in Q4 2022. The company has guided for production of 400 to 600 vans in 2022. If this guidance is met, the stock is likely to trend higher.
The company is also interesting considering the micro-factory approach. The factory would require a minimal capital expenditure of $50 million and can be up-and-running in six-months. Once Arrival can execute on the promises, the stock is poised for multi-fold returns.
However, a big exposure to the stock should be avoided considering the high execution risk factor.
Transocean (RIG)
Even with global slowdown fears, Brent has sustained above $100 per barrel. The outlook remains positive for oil and gas stocks. While there is focus on exploration companies, there seems to be value in onshore and offshore rig stocks.
Transocean (NYSE:RIG) stock is attractive among overlooked value stocks. On a 12-month basis, the stock has trended higher by 14%. With the possibility of higher rig utilization coupled with an increase in day-rates, the outlook is positive.
It’s worth noting that as of December 2021, the company reported an order backlog of $6.5 billion. This provides clear revenue and cash flow visibility. Transocean also has a healthy liquidity buffer of $2.7 billion.
From a growth perspective, the company still has 12 cold-stacked rigs. As these rigs are contracted, there is growth and EBITDA margin expansion visibility.
With potential for swelling cash flows, the company is also targeting debt reduction by $2.3 billion to $3.9 billion through 2026. Given these factors, RIG stock looks attractive and can potentially double in the next 12-months.
Kinross Gold (KGC)
It’s worth noting that even with interest rate hikes, gold has remained relatively resilient. I believe that gold is likely to remain around $2,000 an ounce for two reasons.
First, there is a geo-political risk premium in gold price. Furthermore, with a looming recession in 2023, funds are likely to flow into assets like Treasuries and precious metals.
Kinross Gold (NYSE:KGC) looks attractive among gold mining stocks at a forward P/E of 10.19. For the next few years, Kinross has a steady production profile averaging around two million ounces a year.
It’s worth noting that the company reported a total liquidity buffer of $1.7 billion as of March 2022. With recent asset sales, the company’s financial position is robust. It’s very likely that inorganic growth will boost the production outlook in the next few years.
Kinross has also been delivering healthy free cash flows and the stock currently offers a dividend yield of 2.6%. If gold remains firm around current levels, there is dividend growth visibility over the next few years.
On the date of publication, Faisal Humayun did not hold (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.
