The term “undervalued giants” is somewhat of a misnomer, I won’t lie. In today’s fast-paced market, giant companies, often praised for their stability, can in fact be undervalued stocks. However, this can change, as buyers and sellers rapidly adjust pricing closer to consensus fair value.
That’s why finding truly undervalued stocks takes a little more conviction than reading ratios from a financial statement. Everyone has access to the same information today. Determining whether a stock is undervalued is as much a matter of faith as knowing what shares are worth. That especially applies if you’re investing over a long period. If you think a stock is undervalued but it returns just 5% annually for ten years, whereas the S&P 500 offers 10% annually, you made a losing bet.
The point of finding undervalued stocks is to beat the market, so conviction is key. Considering their longer-term prospects or position, I think these three stocks are undervalued. Each should outperform its respective index in the coming years.
If you want an off-the-beaten-path holiday shopping stock, its hard to beat Etsy (NASDAQ:ETSY). Trading around 75% per share, Etsy isn’t quite low enough to be considered a cheap stock. But pull back and realize that nearly all estimates peg it as 30% undervalued.
Etsy isn’t a big-name eCommerce giant like Amazon (NASDAQ:AMZN), but that doesn’t mean it isn’t a major player in its own right. The company boasts around 90 million active users each quarter. At the same time, those users are spending right around $600 million each quarter, with sales remaining remarkably steady for each of the last five periods – with one exception. Revenue popped to $807 million in Q4 2022 during the holiday sales rush, indicating that Etsy could see the same jump this year.
Etsy’s unique value proposition is its seller market. That market is (mostly) artisans and side hustlers. With as many as 50% of Americans claiming a side hustle, this undervalued stock benefits from an increasing seller base and imminent holiday sales season.
Conagra Brands (CAG)
Conagra Brands (NYSE:CAG) is a giant among food stocks but perpetually undervalued, thanks to troubles with past management decisions. However, president and CEO Sean Connolly made major strides in recent years to reorient the drifting ship.
Today, the company trades at around 1.5x book value, making it decidedly undervalued, considering its market reach. The company’s margins have markedly improved over recent quarters, meaning management is successfully “doing more with less” as they adapt to higher interest rates and (somewhat) shaky consumer confidence. What’s notable, though, is that the company is generating enough free cash flow to pay down $130 million of short-term debt (saving interest expense) simultaneously while offering shareholders a $157 million dividend.
Since Conagra’s short-term debt is its primary burden today, paying it down is a priority that Connolly is aggressively pursuing. But Conagra’s commitment to shareholder value remains. This stock perfectly blends growth upside as it continues tweaking its financial standing and stable income opportunity.
ChargePoint (NYSE:CHPT) took an absolute beating this month as weaker-than-expected sales sent shares crashing by nearly 25%. But today’s per-share price of $2 puts this undervalued stock on the cheaper side of growth stocks.
To be fair, ChargePoint’s operational model is capital-intensive with limited barriers to entry. Both combine to make the company’s long-term prospects shaky, especially if a major player with cash to burn enters the space. But, today, ChargePoint’s dominant position sets it apart from the competition and it’s realigning its model to generate profit more effectively. The company already boasts much of the total addressable market, and increasing focus on software and app integration (like CarPlay) set the company up to send recurring revenue soaring.
People don’t typically seek out their favorite gas station to fuel up (unless it’s Buc-ee’s), and electric vehicle charging is no different. But, if ChargePoint successfully inserts itself into the closed-loop infotainment system many focus on when driving, the company could see a rapid turnaround.
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.