In the stock market, identifying undervalued stocks with the potential to surge can be similar to finding a needle in a haystack.
Investors can find undervalued stocks across diverse sectors. These may continue to make major uplifts in the upcoming bull market run. Each company offers a unique strategic and market positioning blend, from household names to industry giants.
Fundamentals like sales growth, profitability improvements, and innovative strategies are driving these undervalued stocks forward and eventually upward. Each company strengthens its ability to withstand market challenges through strategic pricing or alternative revenue streams.
Read more about the factors propelling these undervalued stocks toward potentially lucrative outcomes.
Domino’s Pizza (DPZ)
To begin with, Domino’s Pizza (NYSE:DPZ) retail sales growth of 5.1%, with US retail sales increasing by 0.9%, suggests the company’s capability to drive sales despite challenges. Additionally, 27 new US stores were added with a stable net growth rate of 1.8%. This reflects a favorable environment for store expansion.
Over 70 stores are under construction, and a stabilized net store growth rate sets a positive outlook. The average price increase of 3.2% across the US system during Q3 suggests Domino’s Pizza’s strategic approach to pricing. Meanwhile, the average realized pricing is moderating to slightly below 1% in Q4, suggesting an edgy pricing strategy.
Finally, focusing on cost efficiency led to a 1.9% improvement in operating income margin versus Q3 2022. This points to a strategic focus on maximizing profitability, making this one of the undervalued stocks set to soar.
Target (TGT)
Target (NYSE:TGT) has a solid improvement in profitability, with the EPS through Q1-Q3 2023 edging 2022 and even surpassing the figures from 2019.
One key factor supporting this profitability is the management of costs, including lower freight costs. Efficient supply chain management and logistics reduce costs, improving overall profitability. Favorable clearance markdowns and merchandise mix adjustments boosted gross margin rates.
There is a focus on digital capabilities, especially same-day services like Drive-Up. This suggests Target’s adaptability to changing consumer preferences. The growth in digital fulfillment reflects the company’s strategic investment in technology and its focus on providing a seamless and convenient shopping experience.
Same-day services like Drive-Up] experienced high single-digit comp growth and expanded by 12%. This suggests consumer acceptance and adoption of these convenient options. Target is leading in this area due to changing consumer preferences and a proactive e-commerce strategy.
Procter & Gamble (PG)
Procter & Gamble’s (NYSE:PG) consistent sales growth and market share gains suggest its ability to support market valuations effectively while outperforming competitors.
The company’s organic sales growth of 4% in Q2 fiscal 2024 indicates adaptability in the market.
One key factor contributing to Procter & Gamble’s strong sales performance is its focus on key markets. These include North America, Europe, Latin America, and Asia Pacific. These regions represent major portions of the company’s sales. Thus, the consistent growth suggests the effectiveness of Procter & Gamble’s market strategies.
The company has focused on volume acceleration in key markets, highlighting its focus on driving top-line growth through increased product consumption.
Finally, market share gains further validate Procter & Gamble’s competitive strength and brand positioning. With global aggregate value share increasing by 0.40% compared to Q2 fiscal 2023, the company shows its ability to capture a larger share of consumer spending.
Netflix (NFLX)
Netflix’s (NASDAQ:NFLX) ad plan now accounts for 40% of all Netflix sign-ups in the ad markets. The ad business increased by nearly 70% quarter over quarter in Q4 fiscal 23.
Netflix’s exploration of alternative revenue streams through ads showcases its focus on diversifying monetization strategies.
Furthermore, the major growth in the ad business indicates that Netflix’s approach resonates with users and advertisers alike. The fact that the ad plan accounts for a considerable percentage of all Netflix sign-ups in the ad markets suggests that consumers are willing to engage with this additional monetization model.
Additionally, the quarter-over-quarter growth in the ad business reflects the effectiveness of Netflix’s offering and the phased-out Basic plan in ad markets. By strategically retiring the Basic plan in some markets, Netflix may capitalize on the potential of the ad business as a major contributor to overall revenue.
The evolution of Netflix’s monetization strategies aligns with changing consumer behaviors and industry trends. Thus, as the company continues to refine its approach to advertising, it has the potential to tap into new revenue and profit pools, further strengthening its value expansion.
DR Horton (DHI)
DR Horton’s (NYSE:DHI) balanced capital approach, focusing on being disciplined, flexible, and opportunistic, contributes to its sustained operating platform.
This means maintaining a solid balance sheet with low leverage and substantial liquidity. This provides the company with the flexibility to navigate changing market conditions.
As of Q1 fiscal year 202, the stockholders’ equity is $23.2 billion, with a book value per share of $69.70. This indicates a 19% increase from a year ago. Also, the return on equity for the trailing 12 months ended in December was 21.8%. This implies the company’s efficient use of capital and focus on shareholder value.
DR Horton’s outlook for 2024 includes expectations of consolidated revenues ranging from approximately $36 billion to $37.3 billion. The homes closed in the 87K to 90K range, highlighting DR Horton’s strategic planning and forward-looking approach.
Therefore, the focus is on generating approximately $3 billion from homebuilding operations, and its plans to repurchase $1.5 billion of common stock boost shareholders’ returns.
3M (MMM)
3M’s (NYSE:MMM) free cash flow is a critical moat. For instance, in Q4 2023, free cash flow increased by 18% year-on-year to $2 billion.
Similarly, 2023 free cash flow hit $6.3 billion, exceeding the original guidance range of $4.2 billion to $5 billion. Fundamentally, 3M’s disciplined execution can be observed through its robust cash flow performance.
The company exceeded its original earnings with financial solid discipline by reducing net debt by $2 billion (17%). The ability to generate major free cash flow allows 3M to return value to shareholders (as dividends).
Beyond the surface number, the automotive electrification program grew by 30% in 2023, compared to a 30% growth in 2022, highlighting the company’s focus on exciting growth opportunities.
Overall, 3M’s strategic priorities focus on growth areas such as automotive electrification, climate technology, and industrial automation. Hence, the data suggest the lead of these efforts, particularly in the automotive electrification program, which experienced substantial growth.
Verizon (VZ)
Verizon’s (NYSE:VZ) investment in C-Band tech has yielded positive results. Markets with C-Band deployment signified higher gross adds, lower churn, and increased uptake of mobility and broadband services.
Performance differentiators, such as millimeter wave deployment in urban areas, suggest Verizon’s focus on providing its customers with the best value and premium experience.
Verizon’s clear priorities 2024 revolve around growing wireless service revenue, expanding adjusted EBITDA, and generating strong free cash flow. The guidance provided for 2024 suggests the company’s edge in sustaining top-line growth while balancing profitability with customer expansion.
The expected wireless solid service revenue growth of 2% to 3.5% suggests Verizon’s focus on executing the right balance of strategic objectives.
Finally, the guidance suggests expectations for adjusted EBITDA growth and improved capital allocation. There is a focus on lowering capital intensity from the C-Band buildout and aligning with business structure changes. Based on that, Verizon projects continued strong free cash flow generation.
As of this writing, Yiannis Zourmpanos held long positions in NFLX, MMM, and VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
