While time in the market usually beats out timing the market, one can certainly appreciate the desire of holding out for underrated stocks to buy. Specifically, even with the latest rumblings in the equities space, the benchmark S&P 500 index offers well into double-digit returns so far this year. It might seem incredibly difficult to find stocks with unrecognized potential.
To be sure, it’s no easy task; otherwise, everybody would be buying the top undervalued stocks. However, with thousands of publicly available securities to choose from, it’s impossible for business media outlets to provide equal coverage to all. Invariably, if you look long enough, you’ll find some compelling ideas that may not have had their chance to shine.
However, anyone who attempts to scour the capital markets for hidden gem stocks must recognize the risk. Basically, if these under-the-radar plays were so immediately convincing, they would have stormed into the limelight by now. Still, as I alluded to above, there are a lot of competing propositions to filter through. For the adventurous risk-taker, these are Wall Street’s forgotten stocks.
Let’s just get right into it with truckload and less-than-truckload (LTL) ArcBest (NASDAQ:ARCB). At first glance, ARCB doesn’t seem like a natural candidate for underrated stocks to buy. Since the Jan. opener, shares gained slightly over 68%. In the trailing year, they’re up nearly 31%.
However, despite ArcBest printing a three-year revenue growth rate (per-share basis) of 22.7% – thereby beating out 83.89% of sector rivals – ARCB trades at a trailing-year revenue multiple of 0.6. In contrast, the sector median stands at a loftier 0.97x.
Additionally, investors should consider that based on its projected free cash flow of 18.6% over the next ten years – based on discounted cash flow (DCF) calculations – ARCB features a fair value of approximately $217.05. Based on the Aug. 4 closing price of $115.64, ARCB commands a margin of safety of 46.72%. Finally, analysts peg ARCB as a consensus moderate buy with an average price target of $126.13. This forecast implies 9% upside potential, making ARCB a worthwhile idea for Wall Street’s forgotten stocks.
Although officially known as Fomento Economico Mexicano, the Coca-Cola (NYSE:KO) anchor bottler is better known as Femsa (NYSE:FMX). Operating the largest independent Coca-Cola bottling group in the world, Femsa represents a powerhouse name across much of Latin America. As with ArcBest above, FMX doesn’t immediately seem like one of the underrated stocks to buy. Since the Jan. opener, FMX gained over 42%.
Still, it’s difficult to ignore that despite Femsa printing a three-year revenue growth rate of 53.7% — outpacing nearly 96% of its peers — the market still prices FMX at 1.01x trailing sales. In contrast, the sector median price-to-sales (PS) ratio clocks in at 1.81x. Also, FMX trades at 2.42x forward earnings, which is significantly undervalued.
Also, it’s worth pointing out that on a DCF valuation model assuming 50% FCF growth over the next ten years, FMX features a fair value of $178.75. Compared to the closing price of $110.78, Femsa enjoys a margin of safety of 38.03%. Lastly, analysts peg FMX as a moderate buy with a $121.80 price target, implying a 10% upside potential. Therefore, it’s a solid candidate for hidden gem stocks to consider.
Patrick Industries (PATK)
Headquartered in Elkhart, Indiana, Patrick Industries (NASDAQ:PATK) is a leading manufacturer and distributor of component products and building materials. Primarily, it serves the recreational vehicle and manufactured housing markets, along with other industrial sectors. PATK has been quietly providing strong returns, gaining nearly 40% so far this year. Still, it makes for one of the underrated stocks to buy.
Even with a powerful top line – the company prints a three-year revenue growth rate of 25.7%, above nearly 92% of its competitors – PATK still offers a compelling discount. Right now, shares trade at 0.51X trailing sales. In contrast, the sector median PS ratio comes in at 0.99x.
Looking at its DCF valuation model, assuming 35% FCF growth over the next ten years, PATK prints a fair value of $593.44. However, against the closing share price of $85.21, PATK enjoys a margin of safety of 85.64%.
To close, analysts peg PATK as a consensus strong buy, breaking down as four buys and one hold. Overall, the average price target lands at $94.20, implying almost 11% upside potential, thus making a case for top undervalued stocks.
AMN Healthcare Services (AMN)
More of a true contrarian’s idea for underrated stocks to buy, AMN Healthcare Services (NYSE:AMN) provides innovative staffing and workforce solutions for the namesake industry. However, AMN stock slipped sharply on Friday as investors didn’t respond well to its results for the second quarter. Since the beginning of the year, AMN is now staring at a double-digit loss.
Still, intrepid speculators seeking stocks with unrecognized potential just might speculate on AMN. Likely, the source of the red ink centers on the company’s Q2 revenue print of $991 million. It’s well off from the year-ago quarter’s tally of nearly $1.43 billion. That makes the cheap multiple associated with trailing sales look like a value trap.
At the same time, AMN’s DCF model – assuming FCF of 34.4% over the next decade – spits out a fair value of $292.19. Compared to last Friday’s close of $89.91, the margin of safety comes out to 69.23%. Overall, analysts remain bullish on AMN, pegging it a moderate buy. Their average price target lands at $106.80, implying nearly 19% upside potential.
Berry Global (BERY)
Based in Evansville, Indiana, Berry Global (NYSE:BERY) offers industry-leading material science knowledge and manufacturing capabilities, per its website. Berry serves various industries, including agriculture, personal care, food and beverages, and shipping and transportation. Despite its wide relevancies, BERY gained less than 4% since the start of the year. Still, this framework makes it one of the underrated stocks to buy.
Right now, the company rings up a three-year revenue growth rate of 18.3%, outflanking 85.23% of its peers. However, shares trade at only 0.58X trailing sales. In contrast, the sector median stat comes in at 0.78X. Also, BERY trades at a low forward earnings multiple of 7.47, beneath the sector median of 12.61x.
Moving to its DCF model, under the assumption of 14.1% FCF growth over the next decade, BERY’s fair value comes out to $175.26. However, against the closing price of $62.72, Berry enjoys a margin of safety of 64.21%. Turning to Wall Street, analysts peg BERY as a consensus strong buy. Their average price target clocks in at $75.71, implying nearly 21% upside potential. Thus, it’s an enticing case for Wall Street’s forgotten stocks.
Radiant Logistics (RLGT)
Hailing from Bellevue, Washington, Radiant Logistics (NYSEMKT:RLGT) offers comprehensive logistics and multimodal transportation services. However, like some of the other ideas above, RLGT doesn’t immediately seem like a case of underrated stocks to buy. Since the start of the year, shares gained nearly 43% of equity value.
Still, in the trailing one-year period, RLGT only moved up a bit over 2%. However, what really makes it one of the hidden gem stocks is the financials. Right now, Radiant rings up a three-year revenue growth rate of 18.2%, above 78% of its rivals. Nevertheless, RLGT trades at only 0.3x trailing sales. In contrast, the sector median stat stands at 0.97x.
Moving to its DCF model, assuming revenue growth of 10.5% over the next ten years, RLGT features a fair value price of $23.08. Given its recent closing price of $7.41, Radiant’s margin of safety comes out to 67.89%. Within the past three months, TD Cowen’s Jason Seidl pegs RLGT a buy with a $9 price target. This forecast assumes growth of over 21%, making it one of the top undervalued stocks.
A highly risky and speculative idea, AutoNation (NYSE:AN) should be reserved for true contrarians only. However, the automotive retailer – which provides both new and pre-owned vehicles – may have a surprisingly bullish framework. True, recent data shows that the average age of passenger vehicles on U.S. roadways hit 12.5 years, a fresh record. At the same time, hurting consumers can only nurse their cars for so long.
Therefore, it wouldn’t be out of the question for AN to be one of the underrated stocks to buy. Financially, we’re looking at a three-year revenue growth rate of 26.4%, beating out 90.2% of the competition. Despite this performance, AN trades at 0.29X trailing sales. In contrast, the sector median stat comes in at 0.82X.
As for its DCF valuation model, assuming a 31% FCF growth rate over the next ten years, AN features a fair value price of $545. Compared to the recent closing price of $156, AN enjoys a margin of safety of 71.38%. Now, investors should realize that AN carries a hold assessment among analysts. However, the average price target stands at $175, implying over 12% upside potential.
On the date of publication, Josh Enomoto 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.