3 Under-the-Radar Stocks That Legendary Investor Peter Lynch Would Love

  • Peter Lynch was one of the greatest money managers of all time with a 29% CAGR during his 13-year stint at Fidelity Magellan.
  • ABM Industries (ABM): The janitorial supplies and facilities management company is on a growth swing again.
  • ACM Research (ACMR): Selling special cleaning equipment to the semiconductor industry has a long runway of opportunity.
  • Toyota Motor (TM): The world’s largest automaker has made itself the premier name in electric vehicles.
Peter Lynch stocks - 3 Under-the-Radar Stocks That Legendary Investor Peter Lynch Would Love

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Peter Lynch is renowned as one of the greatest investors of all time. During his 13-year reign at Fidelity Magellan, assets under management (AUM) grew from $20 million to $14 billion, a 29% compounded annual growth rate (CAGR).

To put that in perspective, Warren Buffett has a 20% CAGR at Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B), albeit over a 60-plus-year tenure. Yet, where Buffett was more of a classic value investor, Lynch was more growth-oriented. He also looked for companies at reasonable prices. And where Buffett typically buys big, well-known companies, Lynch’s philosophy was to buy what you know. 

It shows there are many ways to make a profit on Wall Street. What both investing legends had in common was a buy-and-hold philosophy. Although both men did sell stocks over time, they aimed to hold onto a stock for years and years.

How long you own a stock depends on your financial situation. Never buy stock with the money you need for bills or emergencies. Because stocks can be volatile, you should aim to own shares for at least three to five years at a minimum, though ten years or more is best.

Assuming you have money to put into the market today, these are three under-the-radar Peter Lynch stocks he would love.  

ABM Industries (ABM)

One of the hallmarks of a Peter Lynch stock was that it was boring, and ABM Industries (NYSE:ABM) meets that threshold. The janitorial supplies and facilities management company has been around for 115 years, starting as a window cleaning service. Neither business is fascinating. Although it operates across the commercial, technology, industrial, education and aviation sectors, ABM’s business is not limited to performance extremes. It is more of a steady-as-you-go growth company.

Although the pandemic hurt businesses as companies were forced to close and the work-from-home phenomenon gained traction, business is returning. Revenue grew 4% in ABM’s first quarter, which was all organic growth. Adjusted earnings per share of 89 cents grew 9% year over year. Management also raised its full-year earnings guidance to $3.30 to $3.45 per share, up from $3.20 to $3.40 per share.

ABM Industries also has the benefit of raising its dividend for 55 years, making it a Dividend King. The payout yields 1.9%, and with a free cash flow (FCF) payout ratio of just 30%, there is plenty of room for decades of more dividend growth.

ACM Research (ACMR)

a magnifying glass enlarges the ACM logo on a website
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Wafer fabrication equipment (WFE) manufacturer ACM Research (NASDAQ:ACMR) is another under-the-radar stock representing a significant opportunity. It provides advanced wafer cleaning technologies and equipment at the front end of chip processing, eliminating contaminants from wafer surfaces.

According to analysts at Gartner, the WFE market is declining. It estimates that WFE industry revenue fell 10% last year and will fall another 4% this year. Over the past two years, ACM Research stock has lost 20% of its value. That will soon change.

Gartner forecasts a significant upturn in 2025, with 10% growth followed by additional expansion through 2027. Increasing demand from the semiconductor industry will drive more business to ACM Research.

Although nominally a U.S.-based company, ACMR is a Chinese business that derived 45.5% of its sales from chip companies in China. Its largest customer is Semiconductor Manufacturing International, China’s largest chip foundry, representing almost 17% of total revenue. SiEn, a mainland China power-chip company, accounted for 15.4% of sales, and mainland memory chip maker ChangXin Memory Technologies was responsible for another 13.4%. It also has several Asian customers, including SK Hynix, a leading South Korean memory chipmaker.

With critical, specialized equipment as its forte, look for ACM Research stock to generate significant investor returns in the future.

Toyota Motor (TM)

Toyota motor corporation logo on dealership building
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Toyota Motor (NYSE:TM) isn’t exactly an under-the-radar stock in the typical sense, as it is the largest automobile manufacturer in the world — hardly an unknown quantity. However, as an electric vehicle (EV) manufacturer, it often takes a backseat to Tesla (NASDAQ:TSLA), BYD (OTCMKTS:BYDDY) and other global EV stocks.

That is rapidly changing, too. Toyota has become one of the premier EV companies due to the preceding all-in bets other automakers have made in the sector. Expressing deep skepticism of the worldwide demand for battery electric vehicles (BEV), Toyota went in a different direction by investing heavily in hybrid vehicles. It correctly guessed that car buyers would not want to give up the reliability of gasoline-powered engines and quickly became the global hybrid sales leader. Now Ford (NYSE:F), General Motors (NYSE:GM) and other manufacturers are backpedaling from their BEV fever dreams and are bringing many more hybrids to market.

The sleeper-stock nature of Toyota hybrids makes it one of the best EV stocks — no, one of the best auto stocks — to buy. Toyota Motor stock is a top pick at less than 10 times trailing earnings and estimates, trading at a fraction of its sales and going for much less than its projected earnings growth rate.

On the date of publication, Rich Duprey held a LONG position in ABM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

Article printed from InvestorPlace Media, https://investorplace.com/2024/05/3-under-the-radar-stocks-that-legendary-investor-peter-lynch-would-love/.

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