The stock market continues to be volatile. Ongoing worries about inflation, a potential recession, the banking sector and the U.S. debt limit have conspired to push the major U.S. indices down to start the month of May, with the benchmark S&P 500 having dipped about 2% since the end of April.
While the ongoing churn is no doubt frustrating, it presents a buying opportunity to those who can spot undervalued stocks.
There continues to be bargains in the stock market as we progress through the year’s second quarter. The broad-based decline in equities means that some of the best-run companies in the U.S. are trading at cheap multiples relative to their current and future earnings. In fact, the share prices of many market-leading companies are still down 20% or more from a year ago. This presents a huge buying opportunity for investors looking to put capital to work.
There are plenty of undervalued stocks to buy at discounted prices before the market bottoms and we enter a new bull run. Here are seven of the most undervalued stocks to buy now.
Undervalued Stocks to Buy: Airbnb (ABNB)
Investors looking for a buy-the-dip opportunity should jump on shares of Airbnb (NASDAQ:ABNB). The company’s stock fell 14% immediately after it issued weaker-than-expected guidance for the second quarter. The disappointing guidance came despite Airbnb delivering first-quarter earnings that beat Wall Street estimates on both the top and bottom lines. It announced earnings per share of 18 cents, double the 9 cents that analysts expected.
Additionally, Airbnb reported that its revenue for Q1 totaled $1.82 billion compared to $1.79 billion that was expected, according to Refinitiv data. The results pushed Airbnb to a net profit of $117 million in Q1 from a net loss of $19 million a year earlier.
However, while Airbnb had a robust start to the year, the company warned that second-quarter comparisons would be difficult. Consequently, it forecast Q2 revenue of $2.35 billion to $2.45 billion. Analysts were expecting Q2 revenue of $2.42 billion.
Investors would be smart to buy ABNB stock while it is on sale. The shares are trading nearly 25% below their 52-week high.
Alphabet (GOOG, GOOGL)
Shares of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) have been on an upswing in recent weeks following decent Q1 earnings and growing expectations around its artificial intelligence offerings. That said, the company’s price-to-earnings (P/E) ratio of 24x remains at the lowest level it has been in years.
The parent company of Google reported Q1 earnings that beat Wall Street expectations across the board. The company also announced that its cloud computing unit turned a profit for the first time, and trumpeted a new $70 billion stock buyback program.
The latest results snap a string of four consecutive quarters in which Alphabet missed analysts’ consensus EPS estimates. The company also continues to cut costs, including eliminating 12,000 jobs and shelving its next-generation Pixelbook laptop computer.
Undervalued Stocks to Buy: Norwegian Cruise Line (NCLH)
Norwegian Cruise Line (NYSE:NCLH) is another stock that is recovering after strong Q1 earnings. The cruise operator recently reported that its first-quarter revenue rose 249% to $1.82 billion from $521.9 million a year earlier. Norwegian also reported a Q1 loss of 30 cents a share, which was better than the 41 cents a share loss expected on Wall Street. The company said its occupancy rate during Q1 stood at 101.5%, up from 86.6% in the previous fourth quarter of 2022.
The positive earnings print has NCLH stock up nearly 20% on the year. However, the share price recovery is still in the early innings after a brutal and prolonged selloff during the pandemic. The company’s stock is currently trading 76% lower than where it was at in January 2020 before Covid-19 forced its cruise ships into dry dock.
Looking forward, Norwegian Cruise Line said it expects a full-year 2023 profit of 75 cents a share, up from a previous forecast of 70 cents per share.
General Motors (GM)
Shares of Detroit automaker General Motors (NYSE:GM) continue to struggle, presenting a nice entry point for buy-and-hold investors. GM stock has declined 20% over the last six months. Through five years, the company’s share price is down 10%. Investors can now buy GM stock with a rock bottom P/E ratio of 5.2x. The shares also comes with a quarterly dividend payout of 9 cents a share, which equates to a yield of 1.08%.
The downturn in GM stock comes despite the company reporting solid Q1 earnings and raising its full-year guidance. General Motors announced Q1 EPS of $2.21 versus $1.73 that analysts expected. First-quarter revenue came in at $39.99 billion compared to $38.96 billion that was forecast by analysts. The company also raised its guidance, saying it now expects adjusted earnings of $11 billion to $13 billion, up from a previous range of $10.5 billion to $12.5 billion.
The transition to electric vehicles looks to be taking hold.
Undervalued Stocks to Buy: Amazon (AMZN)
Among big tech stocks, e-commerce giant Amazon (NASDAQ:AMZN) remains the laggard. AMZN stock sits nearly 30% below its 52-week high. Compare that to the stock of Meta Platforms (NASDAQ:META), which has more than doubled in the last six months and is 20% higher than where it was a year ago.
However, Amazon too is showing signs of improvement and investors would be smart to take a position in the company’s stock while it is still a bargain.
At the end of April, Amazon reported better-than-expected Q1 earnings due largely to strength in its cloud computing unit. The company reported EPS of 31 cents compared to a consensus forecast of 21 cents expected on Wall Street. Revenue in Q1 totaled $127.4 billion versus $124.5 billion that was anticipated among analysts. The earnings beat was driven by cloud unit Amazon Web Services (AWS), although online advertising also showed strength in the quarter, posting revenue of $9.5 billion versus $9.1 billion that analysts forecast.
Tesla (TSLA)
While it might sound ridiculous to list electric vehicle maker Tesla (NASDAQ:TSLA) as an undervalued stock, the company’s share price has gone through an extreme correction and remains firmly in recovery mode. Consider that TSLA stock is currently trading 35% lower than where it was in May 2022. The stock’s P/E ratio is hovering around 50x, down from more than 200x at the height of the pandemic-fueled trading boom of 2020 and early 2021.
TSLA stock has continued to move in fits and starts since the electric vehicle maker reported underwhelming Q1 earnings. The share price fell 8% in late April immediately after Tesla reported a 24% year-over-year decline in its first-quarter net income. On an earnings call, Tesla CEO Elon Musk stressed that he sees an “uncertain” economic environment and expects 12 months of “stormy weather” ahead.
While those comments didn’t help the stock in the near term, it sets up investors nicely for the long term.
Undervalued Stocks to Buy: Danaher (DHR)
Danaher (NYSE:DHR) is another stock that investors should never count out. The life sciences company is increasingly focused on research and making medical devices and products used by doctors to diagnose illnesses. DHR stock has been a long-term winner for shareholders. Over the past 20 years, shares are up more than 2,000% compared with a 366% return for the S&P 500. More recently, the share price has pulled back, presenting an opportunity for investors.
DHR stock has experienced a 12% pullback in 2023. The stock continues to slump despite the company’s earnings beating analysts’ average forecasts over the past five consecutive quarters.
Investors should consider taking a position in Danaher before the company spins off its environmental and applied solutions unit later this year. The company announced in September that it plans to shed the unit so it can focus exclusively on its life sciences and diagnostics business.
On the date of publication, Joel Baglole held long positions in GOOGL, GM and DHR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
