In an ever-changing global economy, the stock market remains full of opportunities. The past year has been a roller coaster for many sectors. Unexpected downturns from the bear market, threats of an impending recession, and inflationary pressure brought down hundreds of growing companies. This has lead to the emergence of undervalued stocks.
With several companies that were previously facing difficulties now showing signs of impending growth, as we approach the fourth quarter, there’s a heightened optimism in the market. By using next-gen technologies like AI and by expanding into emerging markets, these companies are ready to boom.
In this article, we’ll shine a spotlight on 7 undervalued stocks that offer investors a chance to be part of these companies’ growth.
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) is the 4th largest bank in the U.S., providing consumer and commercial clients with a wide array of banking, investment, and financial services. The stock price sits at $41.65, but Yahoo Finance analysts project this stock to trade within a one-year price range between $43 – $65, with an average of $50.
With the digital banking platform market projected to grow at a CAGR of 13.8% till 2030, Wells Fargo’s recent significant digital investments no doubt set it for explosive growth in the upcoming quarter. They have already begun ventures with new digital solutions, as shown through ventures such as the AI-powered assistant Fargo and the new Vantage platform. This makes it one of those undervalued stocks.
Looking at Wells Fargo’s financials, its P/E ratio of 10.34x is far below the industry average of 24.96x, reflecting an appealing valuation. The company has demonstrated a CAGR of approximately 18% in EPS over the past year, indicating strong earnings growth. This, combined with its robust net income and competitive gross margins, positions them well for future growth. With consistent free cash flow and reliable debt management, investors should consider adding this stock to their portfolio in the coming quarter.
Devon Energy (DVN)
Devon Energy (NYSE:DVN) is a key player in oil and natural gas production, with a recent high focus on innovation into sustainable energy solutions. Yahoo Finance analysts estimate that this stock will trade within a one-year price range of $30 – $40, with an average of $35.
Devon Energy’s diversification into sustainable energy aligns with industry trends favoring renewable sources. For instance, earlier this year they invested in Fervo Energy, a geothermal startup employing innovative technology, reflecting Devon’s confidence in the growing geothermal sector. Compared to its competitors, Devon Energy’s forward-looking approach, with diversification into sustainable energy and strategic mergers, provides it a competitive edge in adapting to the evolving energy landscape.
Taking a look at its financials, Devon Energy’s P/E ratio of 6.61x, positions it as undervalued compared to its industry average of 8.75x. It also has a high sentiment for earnings growth by analysts with an estimated increase of 17%. Devon Energy is spending a large portion of its invested capital that it has raised into new ventures of finding sustainable energy solutions, which is a key aspect that separates itself from many of its competitors. In short, Devon Energy is a compelling addition to any portfolio lacking an undervalued energy company. All in all, it’s one of those undervalued stocks to consider.
Pioneer Natural Resources Company (PXD)
Pioneer Natural Resources Company (NYSE:PXD) is a major player in the oil and gas industry with a strong presence in basins all over the country. Yahoo Finance analysts estimate it will trade within a one-year price range of $230 – $332, averaging at around $265.
Financially, the company is not only excelling but also demonstrating its ability to surpass competitors. In the last year alone, Pioneer reported an impressive revenue of $20.4 million, a 110% increase from its revenue of $9.6 million less than four years ago! EPS has also demonstrated significant growth, surging from -$1.21 at the end of 2020 to $32.61 at the start of 2023. Looking at its valuation, while it does sit above its industry P/S ratio of 1.43, I believe we see its current P/S ratio of 3.00 signifies investor sentiment in this company seeking to expand into the sustainable markets. It’s therefore one of those undervalued stocks.
Besides all of its great financials, Exxon just recently signed a deal to buy Pioneer for $60 billion.
This deal is not only expected to increase Exxon’s production volume in the Permian basin to 1.3 million barrels of oil/day, but it will also help Exxon lower its environmental footprint as it accelerates Pioneer’s net-zero plan from 2050 to 2035.
As I see it, this acquisition by Exxon will only continue to help Pinoeer continue to grow in the upcoming quarters, positioning it as a great addition to any stock portfolio.
Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) is already a leading company in the energy sector, specializing in oil and gas exploration and production, specifically through innovative drilling methods and its commitment to sustainability. Yahoo Finance analysts estimate it will trade within a one-year price range of $145 – $222, averaging at around $177.
Looking at Diamondback’s financials, its revenue of $8.2 million may not seem glowing at first, especially compared to energy sector leaders. However, when looking at it historically, it has almost tripled its revenue in the past three years from $2.80 million. In addition, earnings have grown from an EPS of $1.47 at the beginning of 2020 to $24.61 in 2023. It’s therefore one of those undervalued stocks to consider.
Diamondback’s P/E ratio is relatively in line with the oil/gas sectors, with its trailing 12 months at Diamondback at 8.64x and the sector’s at 8.7x. But Diamondback’s P/S ratio is what sets it apart as its current P/S ratio stands at 3.62x, a 50% increase from 2.38x a little over a year ago. With its free cash flow also growing from -$968,000 in 2019 to $1.7 million TTM, I believe this added flexibility in future growth and reinvestment will position it as a great energy stock pick to diversify any portfolio.
Pfizer (PFE)
Pfizer (NYSE:PFE) is a biopharmaceutical company that provides affordable medicines, like the COVID-19 vaccine, through working with healthcare providers and the government. With a new wave of COVID booster shots upcoming, producing and disseminating all of these vaccines within Q4 gives it massive growth potential within the coming months. In fact, 21 Yahoo Finance analysts predict that the stock will trade between 32 and 75 dollars with an average of 44 dollars.
Pfizer’s new mRNA COVID vaccine specifically targets the omicron variant that still produces nearly 18,000 hospitalizations weekly. Within the past month, the new booster shot was approved by the FDA, allowing the vaccine to be rolled out. And with approximately 50% of Americans likely to take the mRNA booster, Pfizer will have to meet demand for the shot which will surely lead to growth in the next quarter. It’s a great undervalued stock.
Looking at Pfizer’s financials, its P/E ratio sits at an extreme valuation of 8.54x compared to the industry average P/E of 27.08x, showing that the company is probably undervalued. Furthermore, its EPS has grown an excellent 127% over the past four years. With such an undervalued P/E ratio and increased demand for the new COVID-19 booster shot, Pfizer is an amazing pick for growth in Q4.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is a tech company heavily expanding into AI, an industry we all know is set to boom in the coming years. Microsoft has recently started aggressively spending to improve its AI technology and recently announced plans to sell a new AI software that helps customers make their own apps to use in their business. The stock is up over 40% in the past year with an average Yahoo Finance analyst 1-year price target of $391.34 compared to its current price of $332.64.
The EPS of the company has grown consistently each year over the last 5 years, rising from $2.15 in 2018 to $9.72 in 2023. This trend is only set to continue with EPS expected to hit $11.01 by next year. In terms of valuation, its current Price / Cash Flow ratio is 22.10x, which is trading below its 5-year average of 23.35x. This could indicate Microsoft is slightly undervalued when considering the future cash flow generation.
Duke Energy Corporation (DUK)
Duke Energy Corporation(NYSE: DUK) owns and operates various energy-related power plants, and has begun popping up on many ESG-conscious investor’s radar. Yahoo Finance analysts estimate that this stock will trade in a one-year price range between $88.68 to $120.00, with an average of $98.88.
Recently, Duke Energy Florida recently collaborated with One Tree Planted in an attempt to support clean energy and forest restoration. This would also jumpstart a solar energy program where subscribers could help fund the expansion of renewable energy centers. With a leading dominance in the Southern US’s energy industry, this company will no doubt continue to benefit from the trend toward sustainable energy usage.
From a financial standpoint, Duke Energy sits at a relatively fair P/E valuation of 18.39x, a bit above its sector median of 17.86x. While its EPS has remained fairly stable over the past couple of years, I have confidence that the strides made through the Inflation Reduction Act alongside Duke Energy’s consistent collaborations for innovation will help it drive explosive growth in the upcoming quarters. This makes it one of those undervalued stocks to buy.
On the date of publication, Ian Hartana and Vayun Chugh 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.
