It may be tempting to step away from stocks for the summer. After a strong end to 2023, this was supposed to be a year when equities continued to rip higher. But that hasn’t been the case. The Federal Reserve has put lower interest rates on pause. Inflation is inching higher. Those issues are keeping stock prices down. But before you do, you may want to rebalance your portfolio with some undervalued stocks to buy in May.
Chances are you have some technology stocks. These companies have been delivering better-than-expected earnings reports. And sectors like cybersecurity and AI have long runways for growth.
However, tech stocks are volatile, and many are objectively overvalued. That could lead to a surprise you don’t want after Labor Day. An alternative is to look for undervalued stocks in other sectors. These stocks are all forecasting earnings growth, which should lead to future upside for the stocks. And each of these undervalued stocks to buy in May pay a sustainable dividend.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) looks different since it spun off its consumer products division last year. The slimmed-down JNJ is focused on innovative medicines (i.e., pharmaceuticals) and medical technology (med tech). The company delivered mixed first-quarter earnings with a slight miss on revenue but a beat on the bottom line.
However, as recent news makes clear, Johnson & Johnson is still dealing with the implications of its long-running lawsuit over its talc powder’s potential link to ovarian cancer. The company proposed a new settlement offer in early May saying it will resolve nearly all pending suits.
JNJ stock jumped about 5% on that news but has since given up some of those gains. Analysts give the stock a consensus Buy rating with a price target of $174, giving the stock a 17% upside. And with that, you get a dividend with a yield of 3.33% and an annual payout of $4.96 per share.
Altria (MO)
Altria (NYSE:MO) makes this list of undervalued stocks to buy in May, as it has for several months. The company is a leading manufacturer of tobacco products, and the market for those products is declining. But the company has been pivoting into the smokeless tobacco (e.g., vaping) part of the market.
At a time when many people are investing their values, it’s understandable if MO stock is a no-go for you. And fundamentally, the company is showing stagnant revenue and earnings. But there is something to be said for consistency. The company is adding market share, which should keep the money flowing.
Analysts have a Hold rating on Altria and are only projecting about 3.8% earnings growth next year. That’s the midpoint of the company’s own guidance for between 2% and 4.5%. Either way, it means the company’s dividend, which currently has a yield of 8.85%, should be safe. Plus, the company recently announced a $2.4 billion share buyback program after selling its interest in Anheuser-Busch InBev (NYSE:BUD).
Huntington Ingalls Industries (HII)
If you’re looking for undervalued stocks to buy in May, infrastructure and defense are two great options. You get them both in Huntington Ingalls Industries (NYSE:HII). The company is the leading shipbuilder for the U.S. Navy, with a $48 billion backlog to back up its buy case.
However, HII stock is down 14% in the month ending May 8, hastened by a steep slide after the company’s earnings report. Analysts are concerned about narrowing margins. However, with the stock trading near a five-month low and geopolitical tensions at a multi-year high, it may be time to take a closer look.
When you do, you’ll see that analysts forecast over 16% earnings growth in the next 12 months. Analysts also give the stock a projected average of 8% upside to go along with a growing dividend that yields 2.11% and pays $5.20 annually per share.
On the date of publication, Chris Markoch 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.
