The markets have a reason to cheer in the near-term with the debt ceiling crisis averted.
Notably, the last quarter has historically been good for equities. Potential reversal in monetary policy stance in 2024 is another impending catalyst for the market. Given these factors, it’s a good time to accumulate some undervalued dividend stocks.
In the first three quarters of the year, several dividend and growth stocks have surged. As a result, certain stocks are trading at stretched valuations even as the broader market looks attractive. Investors will look for value stocks, which possibly means names that trade at a valuation gap will be in the limelight.
These massively undervalued dividend stocks are poised for a strong rally in the next 12 to 15 months, potentially delivering 40% to 50% total returns.
Albemarle Corporation (ALB)
At a forward price-earnings ratio of 6.4, Albemarle Corporation (NYSE:ALB) is among the most undervalued dividend stocks. While the dividend yield is low at 0.94%, ALB stock is poised for robust dividend growth in the next five years.
For now, a correction in lithium price has translated into downside for the stock. However, lithium has a positive outlook considering the impending supply gap. Further, Albemarle has ambitious growth plans that will translate into healthy cash flows.
Coming to the growth plans, Albemarle reported lithium conversion capacity of 200ktpa in 2022. The company has guided for capacity of 550ktpa by 2027. Through this expansion, Albemarle expects an annual lithium sales volume growth of 20% to 30% through 2027.
If this expansion is supported by lithium trending higher, there is ample scope for value creation. Therefore, the valuation gap is a good opportunity to accumulate, even beyond the initial time horizon of 12 to 15 months.
Pfizer (PFE)
Markets are concerned about Pfizer’s (NYSE:PFE) growth, as reflected in valuations of PFE stock declining by 35% for year to date (YTD). However, with selling overdone, PFE stock trades at a deep valuation gap.
To be specific, 20 analysts offering a 12-month price forecast for PFE stock have a median target of $40.5. This implies an upside potential of 22%. And when considering the dividend yield of 4.94%, the total returns are likely to be close to 30%. A potential reversal rally can always have a overreaction on the upside, and 40% returns on PFE stock seem likely by the end of 2024.
Notably, Pfizer is addressing growth concerns through two strategies. First, they are investing in research and development. With their deep research pipeline, the company expects new molecular entities to contribute $20 billion in incremental revenue by 2030.
Second, Pfizer has been aggressive on an acquisition front for portfolio diversification. The company is targeting $25 billion in incremental revenue from new business deals by 2030. With these positives, expect a PFE stock reversal relatively soon.
Vale (VALE)
Vale (NYSE:VALE) stock is the third attractive name among undervalued dividend stocks.
After being sideways in the last 12 months, the 5.9% dividend yield stock looks poised for a breakout. Even JP Morgan (NYSE:JPM) believes that Vale is “too cheap to ignore”.
A forward price-earnings ratio of 6.6 indicates significant undervaluation. Further, 21 analysts offering a 12-month price forecast for VALE stock have a median target of $17.5. This would imply a 30% upside potential from current levels. Considering the dividends, the total returns are likely to be robust by the end of 2024.
Further, rate cuts are impending in 2024, a positive impetus for industrial commodities. As a matter of fact, iron ore prices have trended higher in the last few months. The coming quarters are likely to be better as compared to first half of 2023.
With a strong balance sheet and a diversified product portfolio, Vale looks attractive at current levels. The company’s focus on metals that will benefit from global energy transition is likely to yield positive results.
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.
