There are tens of thousands of stocks to choose from when it comes to investing, so many that investors oftentimes find themselves stuck with choice paralysis. While investors see the same obvious big names flying around news headlines all the time, the most attractive investments are often stocks that are still flying under the radar. Oftentimes, companies like these have largely underappreciated business models that require proper due diligence to discover.
Finding such “sleeper” stocks is no easy feat. Oftentimes, by the time most investors catch wind of a strong company, the small window for upside and growth potential is no longer there. In this article, we have done the heavy lifting of sifting through dozens of analyst screeners to handpick companies you may have only faintly heard of. Here are three undervalued sleeper stocks that you definitely should put on your watchlist!
Northrop Grumman (NOC)
Northrop Grumman (NYSE:NOC) is a leading aerospace and defense contractor best known for its high-profile projects with F-35 fighter jets and unmanned aerial vehicles (UAVs). Wall Street analysts are currently eyeing a one-year price target for this stock between an average of $504 to a high of $585.
A large reason why NOC has flown under the radar recently has been due to recent supply chain issues alongside the long product lifecycle nature of A&D companies. Currently, NOC is at the very beginning of a new set of high-value defense programs including the B-21 Raider and Sentinel missile systems. While the company is seeing a short pullback currently due to inflation and material shortages, these new programs are just the first of NOC’s long-term future growth.
As a result of the stock’s near 10% drop over the past 6 months, NOC’s valuations are looking more attractive than ever. Not only is NOC’s P/E ratio finally dipping under its sector median of 19.41x, but when looking at its PEG, we see a discount of over 50%! As NOC’s high-growth potential becomes realized by investors, I would recommend everyone to consider this sleeper stock as an under appreciated A&D pick.
Super Micro Computer (SMCI)
Super Micro Computer (NYSE:SMCI) is an informational technology manufacturing company that, despite recent success from AI tailwinds, has largely been overshadowed by the likes of Nvidia (NASDAQ:NVDA). Nonetheless, analysts still remain optimistic about this company as well, and hold an average one-year price target projection of $1,057.46 representing a 36% upside.
While this company is decently well-known to those involved in the AI and tech space, SMCI doesn’t quite spark the same effect as NVDA just yet. Nonetheless, the company’s Q3 earnings have begun to bring attention to its exemplary financials and developments that may just rival Nvidia soon. Another key overlooked driver for SMCI is the materialization of a collaboration with SiMa.ai and CVEDIA to bring smart city solutions to the edge. This collaboration will no doubt be a key turning point to addressing new market share and bringing sleeping SMCI into the limelight.
Like any growth company, it’s best to look at SMCI’s PEG, rather than P/E or EV/EBITDA. Currently, SMCI’s PEG ratio of 0.64x is sitting at 48% under the sector median of ~1.25x. So, for investors who still are bullish on the AI pick, SMCI may just be an NVDA alternative that is worth taking a look at.
Builders FirstSource (BLDR)
Based in Irvine, TX, Builders FirstSource (NASDAQ:BLDR) is focused on everything that involves building a home. From wires and pipes to cabinets and nails, they have it all. While the stock is trading at just below $150 per share, its one-year target estimate of $204.27 offers investors about a 33% upside. Our question is, how exactly will Builders FirstSource achieve this?
Let’s face it. Although interest rates are still relatively high and will never go back down to their historic lows of 2%, there is a housing shortage nationwide. To bridge the gap, the companies over 570 locations are in the perfect position to supply these building materials and jump on this larger macro trend. Now that the company has comfortably situated itself with a merger with BMC Stock Holdings, a company specializing in the distribution of building materials, BLDR has set itself apart as an under appreciated stock that is ready to explode.
Over the five years, the stock has risen by more than 900% over the past 5 years. However, as the stock now sees a strong pullback due to an increase in borrowing costs and the slowing of residential construction, its P/E ratio nearly 50% below its sector median is becoming more and more attractive. As the housing shortage soon becomes a growth catalyst in the future, investors should look toward BLDR as an undervalued sleeper stock getting ready to rebound!
On the date of publication, Ian Hartana and Vayun Chugh 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.
