Walking into the latter half of 2023, we’re looking at a very different stock market than a year ago. Despite elevated interest rates and ongoing inflation, the S&P 500 is up for the fifth consecutive month. The index returned a solid 20% since January, and the breathless cries of “imminent recession” are mostly whispers now. We’re now left looking at increased bargain stock opportunities because the previous panic is subsiding.
Still, overall market volatility left a handful of stocks trading at a steep discount. Less affected by the sharp reversal, these stocks are down 10% or more this year. This imbalance creates a unique opportunity for savvy investors hunting for potential bargains.
Although suppressed share prices often indicate underlying issues, these companies exhibit solid fundamentals, promising prospects and potential for recovery, making them attractive options for most investment portfolios. Whether you’re a value investor looking for an undervalued gem or a contrarian willing to go against the market grain, these three stocks should be on your radar for the rest of the year.
Quest Diagnostics (DGX)
Quest Diagnostics (NYSE:DGX), the healthcare mainstay offering independent diagnostic testing, is struggling to hit analyst expectations post-pandemic. The company recently reported an earnings drop, mostly driven by “faster than expected declines in Covid-19 revenues,” according to the company CEO. Still, Quest’s core operational base remains strong and revenue from those business sectors is up 10%.
Ultimately, Quest’s core business is on a solid path to recovery. The company’s executives predict a steady 2% revenue growth through 2024, while its expanded testing toolkit integrating cutting-edge AI features helps maintain its competitive position.
Ultimately, the American healthcare landscape has a profitable forecast. A recent McKinsey report indicated a 4% combined annual growth rate through 2026, although increased provider costs may cut into hospital and specialty care center profits. This bodes well for Quest, as many of these providers, looking to streamline operations and cap internal costs, will outsource diagnostics to third-party providers.
Quest has a long road ahead despite an optimistic outlook. Still, this year’s stock price beatdown is undeserved. The firm should see a healthy bounce back and become an optimal choice of bargain stock opportunities, as its core operations pick up the post-Covid-19 slack.
American Tower Corp (AMT)
Cell tower and data center REIT American Tower Corp (NYSE:AMT) is having a rough year, largely because telecom mergers reduced the company’s American customer pool. At the same time, the company’s been shedding unprofitable overseas operational assets, including those in India. But both these factors are a positive sign for AMT’s prospects. They indicate a renewed focus on what matters for the real estate giant: a focus on expanding core connectivity. This focus will serve the REIT well as the global Internet of Things paradigm accelerates.
Analysts agree, sticking the stock with a strong “Buy” consensus and pegging the REIT’s fair value at $220 per share – indicating a significant upside from today’s pricing. BMO Capital, who began coverage of the company in July, is representative of overall analyst expectations moving forward. BMO expects as much as 25% upside from current pricing, projecting nearly 4% revenue growth for future periods.
AMT investors waiting for the reversal can also enjoy the company’s substantial dividend yield. The company currently distributes $6.28 annually, a more than 3% yield. That yield may be lower than many fixed-income investment options. Still, investors can capitalize on the yield through dividend reinvestment to continue building a position in the REIT. With reinvestment, keen investors can keep their cost basis low while they await the company’s bounce back.
General Dynamics (GD)
Defense giant General Dynamics (NYSE:GD) had a tough year as they’ve struggled to adapt to stretched supply chains that feed the development of their weapons and aerospace manufacturing sectors. But, today, they’ve mostly managed to reorient themselves to a changing global landscape. Likewise, recent reports indicate a hefty upside for the company, making them one of the ideal bargain stock opportunities.
At the end of July, management issued increased revenue forecasts driven by increased demand for private jets and military equipment demand. The company’s improved forecast is backed by performance. The recent $2.70 earnings per share beat analyst estimates by a solid 6%. Sales are also up across the board. The company reported $2.5 billion in new aerospace sales last quarter and a 15% increase in marine sales demand.
Ultimately, while strained supply lines present a continued challenge for the company through 2023, analysts commend the company for being “an extraordinarily well-run and financially disciplined company.” In an industry where many struggle with slim profit margins, GD’s double-digit margins and consistent profitability shouldn’t be ignored. As the world continues returning to normal and adapting to supply shifts, this dividend aristocrat stock is poised for substantial upside growth.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
