If you’ve run out of ideas, why not revert to good old value investing? I mean, buying securities at discounts isn’t a bad strategy, especially when their fundamentals are aligned. Moreover, interest rates remain elevated, meaning value stocks are likely better placed than growth stocks for the time being.
An issue with value investing is that value traps are a frequent occurrence. As such, I decided to apply a robust screening methodology to identify three best-in-class value stocks. Methodologically, my screening process emphasized fundamental aspects and technical analysis. Additionally, I ensured that each pick had the necessary systematic support.
Considering the above, here are three undervalued stock gems to consider.
National CineMedia (NCMI)
National CineMedia (NASDAQ:NCMI) is an advertising company that distributes content via cinemas, online devices, and mobile. I think NCMI stock is an excellent opportunity, as many have grown overly pessimistic about the cinema business post-Covid-19, yet National CineMedia’s fundamentals have rebounded sharply. Moreover, NCMI stock has a forward enterprise value-to-sales ratio of merely 1.6x, placing it in deep value territory.
Some might be concerned by the firm’s aging business model. However, NCMI’s first-quarter revenue increased by 7% year-over-year to $37.4 million amid a 31% increase in advertising revenue, suggesting its headline features are intact. Furthermore, the firm has scope to diversify into digitalized offerings, meaning we could see a rejuvenated growth stage unfold in due course.
Lastly, National CineMedia announced a share buyback program in March, which would see it repurchase about $100 million in stock by April 2027. The program naturally lowers NCMI stock’s cost basis, allowing investors to share in an open market-driven value adjustment.
British American Tobacco (BTI)
British American Tobacco’s (NYSE:BTI) stock seems like a deal that is too good to be true. The company’s stock battled negative sentiment in the past few years due to a restructuring period. However, BTI stock’s prospects are bright.
Contrary to what most might think, British American Tobacco has become a modern company. The firm recognized that it had to diverge from being a burning tobacco pure play and consequently moved into modern-era product lines. Non-combustible products now comprise 16.5% of British American Tobacco’s revenue mix.
Furthermore, the company has shown conviction in the cannabis industry by upping its stake in Canadian cannabis producer Organigram (NASDAQ:OGI) to 45%. This level of intent, paired with the firm’s commitment to non-combustible product development, illustrates that British American Tobacco is committed to seeking renewed growth for its shareholders.
British American Tobacco’s valuation outlook is solid. For example, BTI stock has a forward price-to-earnings ratio of merely 7.2x and a forward dividend yield of 9.4%. Additionally, BTI stock has formed a momentum pattern by exceeding its 10-, 50-, 100-, and 200-day moving averages.
Great Elm Capital (GECC)
Great Elm Capital (NASDAQ:GECC) is a business development company, or BDC, operating in corporate lending. The firm invests in middle market issuers via various debt, equity, and hybrid instruments. Although approximately 24% of Great Elm’s portfolio comprises chemical and energy loans, GECC is sector-diversified, with investments across more than 20 industries.
The company has alluring headline metrics. For example, its portfolio has a weighted average investment yield of 13.1% and a weighted average price-to-par of 95.7%.
Furthermore, GECC announced last month that it had received additional liquidity by raising $12 million in equity. Given the scintillating yields available in the corporate debt market, the vehicle’s equity increase is a positive feature.
Lastly, key metrics suggest that GECC is undervalued. For instance, the BDC has a price-to-book ratio of 0.8x and a dividend yield of 13.9%.
On the date of publication, Steve Booyens 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
