High-Quality Stocks to Buy That Are Trading Below Fair Value

  • High-quality stocks trading below their fair value are especially tempting in a down market.
  • Bank of America (BAC): Well-positioned to benefit from the ongoing interest rate hikes.
  • Levi Strauss (LEVI): Saw an impressive 35% year-over-year increase in its direct-to-consumer segment.
  • Logitech International (LOGI): Management’s outlook through fiscal 2027 calls for a CAGR of 8%.
  • Lowe’s Companies (LOW): Increased operating margins despite high inflation and supply chain pressures.
  • NIKE (NYSE:NKE): Nike Brand Digital sales jumped 22% YoY.
  • Whirlpool (WHR): Generates a juicy dividend yield at the current share price.
  • Winnebago Industries (WGO): Backlog grew by 22% due to strong demand across its vehicle portfolio.
High-Quality Stocks - High-Quality Stocks to Buy That Are Trading Below Fair Value

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Amidst the selloff in the stock market, investors are increasingly focused on identifying high-quality stocks that are trading below fair value. Different analysts may use different quantitative methods to find the fair value of a stock.

For instance, Morningstar arrives at a company’s fair value by determining “how much we would pay today for all the streams of excess cash generated by the company in the future.”

Their analysts use a “detailed discounted cash-flow model” that factors in projections for a firm’s income statement, balance sheet, and cash-flow statement.

Investors have access to various market screeners to find high-quality stocks that trade below fair value. I  used a screener offered by paywalled InvestingPro (a free trial is available).

With that information, here are seven high-quality stocks that are currently trading behind fair value:

BAC Bank of America $32.26
LEVI Levi Strauss $16.80
LOGI Logitech International $53.25
LOW Lowe’s Companies $174.72
NKE Nike $102.78
WHR Whirlpool $161.03
WGO Winnebago Industries $50.40

Bank of America (BAC)

Bank of America (BAC) logo on top of a retail office building.
Source: 4kclips / Shutterstock.com

52-week range: $32.96 – $50.11

Bank of America (NYSE:BAC) is one of the largest financial institutions in the U.S. By value of deposits, it’s second place behind JPMorgan Chase (NYSE:JPM).

The leading bank released Q1 results on April 18. Revenue increased 1.8% year-over-year (YOY) to $23.2 billion. Diluted earnings per share (EPS) came in at 80 cents, compared to 82 cents a year ago.

Banks are typically sensitive to moves in interest rates. Given its large domestic shares, Bank of America is expected to benefit significantly from rising rates.

Management recently highlighted that a 1% increase by the Federal Reserve would lead to $5.4 billion of net interest income (NII)  within the coming year.

BAC stock has declined around 30% year to date (YTD). It currently generates a 2.32% dividend yield. Shares look moderately valued at 10.3 times forward earnings and 3.2 times sales.

Wall Street’s 12-month median price forecast for BAC stock stands at $47. Similarly, fair value estimates suggest $44.67 for Bank of America shares.

Levi Strauss (LEVI)

a stack of white t-shirts with the Levi's (LEVI) logo on them
Source: Papin Lab / Shutterstock.com

52 week range: $15.76 – $30.09

Iconic jeans brand Levi Strauss (NYSE:LEVI) had global denim sales that approached $5.8 billion in 2021.

The denim leader announced Q1 results on April 6. Revenue increased 22% YOY to $1.6 billion. Adjusted diluted EPS jumped to 46 cents, up from 34 cents a year ago. Cash and cash equivalents ended the period at $678 million.

Levi Strauss reported a 35% YOY increase in its direct-to-consumer segment. Growing sales compensated for rising input and distribution costs. As a result, the company was able to increase its gross profit margin by 1.7% to reach 59% of sales.

In addition, Levi’s e-commerce business grew 42% YOY during the quarter.

Management anticipates full-year 2022 sales growing roughly 11% to 13% after a 29% spike last year. The global denim jeans market is expected to be well over $85 billion by 2027.

So far in 2022, LEVI stock has fallen 32%. It currently generates a 2.1% dividend yield. Shares look undervalued at 10.35 times forward earnings and 1.1 times sales.

Analysts’ 12-month median price forecast for Levi Strauss stock stands at $27. Meanwhile, fair value estimates suggest $28.65 for LEVI shares.

Logitech International (LOGI)

Two receivers for wireless Logitech (LOGI) devices, plugged into a laptop computer.
Source: Somphop Krittayaworagul / Shutterstock.com

52-week range: $56.23 – $140.17

Peripherals producer Logitech International (NASDAQ:LOGI) provides a wide range of computer and mobile accessories for use in various applications.

With a market capitalization (cap) of about $10.3 billion, investors are hopeful that this is one of the high-quality stocks that could see many quarters of growth.

The Switzerland-based company released Q4 results on May 2. Revenue declined 20% YOY to $1.23 billion. Adjusted earnings declined to 81 cents per diluted share, compared to $1.45 a year ago. Cash and equivalents ended the period at $1.33 billion.

Despite lackluster results, Logitech is confident about returning to growth, especially due to favorable trends in gaming and video conferencing. Gaming generated $1.4 billion in sales in fiscal 2022, accounting for the largest sales category.

Management forecasts the video collaboration segment to grow to $2 billion in annual sales. Recent metrics highlight that Logitech is the leading manufacturer of video conferencing hardware worldwide.

LOGI stock has dropped 37.5% YTD. The dividend yield currently stands at 1.57%. Shares look cheap at 12.4 times forward earnings and 1.8 times sales.

Analysts’ 12-month median price forecast for Logitech stock stands at $87. Similarly, fair value estimates suggest $93.38 for LOGI stock.

Lowe’s Companies (LOW)

the front of a Lowe's store
Source: Helen89 / Shutterstock.com

52-week range: $179.22 – $263.31

Lowe’s Companies (NYSE:LOW) is the second-largest home improvement retailer chain globally behind Home Depot (NYSE:HD). It operates 2,200 stores in North America.

The home improvement giant released Q1 results on May 18. Revenue declined 4% YOY to $23.7 billion. Diluted earnings soared to $3.51 per diluted share, compared to $3.21 in the prior-year quarter. Cash and equivalents ended the period at $3.41 billion.

During the quarter, comparable-store sales declined 4% YOY in the core U.S. market. In addition, outdoor seasonal categories were impacted by colder than average temperatures in April.

Nevertheless, the Q1 operating margin increased to almost 14% despite inflationary and supply chain pressures. Management now anticipates FY 22 sales to reach between $97 billion and $99 billion.

LOW stock has declined almost 32% YTD, and supports a 2.13% dividend yield. Shares are trading at 13.9 times forward earnings and 1.3 times trailing sales.

Analysts’ 12-month median price forecast for Lowe’s stock stands at $240, making it one of the high-quality stocks to keep an eye on. Fair value estimates suggest $245.87 for LOW stock.

Nike (NKE)

a stack of red Nike (NKE) shoe boxes
Source: mimohe / Shutterstock.com

52-week range: $103.46 – $179.10

Nike (NYSE:NKE), the global leader in sports footwear, apparel and accessories boasts innovative footwear worn by famous athletes. Its global market share remains well over 27% which makes it among the high-quality stocks to consider buying here.

Nike issued Q3 FY22 results on March 21. Revenue came in at $10.9 billion, up 5% YOY. Diluted EPS stood at 87 cents, compared to 90 cents a year ago. Cash and equivalents ended the period at $8.7 billion.

The top-line growth was a welcome surprise as Nike’s sales in China plunged 8% due to pandemic-driven factory shutdowns. During the quarter, the Great China region accounted for almost 20% of revenue but generated roughly 45% of the operating profit.

Nike mobile app sales were up more than 50% during the quarter, outpacing Nike.com as the primary source of digital demand. As China lifts Covid-19 restrictions, investors are more optimistic about top-line growth for the rest of the year.

NKE stock has lost 37.5% YTD and currently supports a 1.01% dividend yield. Shares look attractively priced at 23.7 times forward earnings and 3.7 times trailing sales.

Wall Street’s 12-month median price forecast for Nike stock stands at $160.50. Meanwhile, fair value estimates point to $137.39 for NKE stock.

Whirlpool (WHR)

the Whirlpool (WHR) logo on a corporate building
Source: Grand Warszawski / Shutterstock.com

52-week range: $164.52 – $245.44

Appliance maker Whirlpool (NYSE:WHR) is well-known for its refrigerators, freezers, cooking, and laundry appliances. Its global brand portfolio includes Whirlpool, KitchenAid, Maytag, Consul and Brastemp.

The U.S. and Canada account for the bulk of sales. Therefore, the strength of especially the U.S. consumer and domestic economic developments have a significant effect on operations.

Whirlpool issued Q1 results on April 25. Revenue fell 8.2% YOY to $4.92 billion. Adjusted earnings declined 26.3% YOY to $5.31 per diluted share, from $7.20 in the previous-year quarter. Cash and equivalents ended the period at $2.11 billion.

Passive-income, high-quality stocks like WHR, are getting increased attention on Wall Street.

The appliance giant increased its quarterly dividend by 25%, marking ten consecutive years of dividend hikes. Whirlpool stock currently supports a generous 4% dividend yield.

So far in 2022, WHR shares have dropped more than 30.5%. As a result, they look significantly undervalued at just 7.55 times forward earnings and 0.50 times sales.

Analysts’ 12-month median price forecast for Whirlpool stock is at $213.50. Meanwhile, fair value estimates suggest $278.91 for WHR stock.

Winnebago Industries (WGO)

A photo of an RV on the side of the road
Source: Tupungato / Shutterstock.com

52-week range: $43.05 – $80.30

Winnebago Industries (NYSE:WGO) manufactures outdoor lifestyle products, including RVs, travel trailers and powerboats.

Winnebago released Q2 results on March 23. Revenue increased 39% YOY to $1.2 billion. Adjusted earnings per diluted share jumped to $3.14, up from $2.21 in the prior-year quarter. Cash and equivalents ended the period at $134.8 million.

The outdoor lifestyle brand is enjoying solid demand for many of its products. Thus, management can hike prices and pass on rising input and transportation costs to consumers. As a result, the gross profit margin remained steady at 19% of sales.

However, production volume was lower than expected as a result of supply-chain challenges. So backlogs grew by 22%, representing $4.4 billion in contracted but unbilled sales.

WGO stock has fallen 33% YTD, and generates a 1.5% dividend yield. Shares offer value at 4.3 times forward earnings and 0.4 times sales.

Wall Street’s 12-month median price forecast for Winnebago stock stands at $71. Finally, fair value estimates point to $83.18 for WHR stock.

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.

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