The pandemic and the sudden contraction of business activities have caused some interruptions in our daily lives. However, the unfortunate events do not stop most of us from looking for opportunities to maximize our fortune.
One thing is for sure; the investing world, especially the stock markets, has been sprinting and going hotter more than ever. The urges for wealth creation have not stopped ever than before! The indexes from around the world have gone higher and higher.
Pricing is still a ticket to winning your luck. Today, more than 3,500 public listed companies are available for investors in the US stock exchanges; not all stocks always draw investors’ attention. The potential and undervalued stocks may help you hit the targets in your next hunt for treasures.
What Is an Undervalued Stock?
As its name implies, a stock’s market price is below its intrinsic value. The investing giant – Mr. Warren Buffett, has called the gap between the two values “margin of safety.” The bigger the gap is, the stock is more undervalued and worth buying in.
Now, you may wonder how to find out the intrinsic value while then it becomes easy to figure out the gap—-margin of safety. The rest becomes a piece of cake,e.g., looking for a stock’s market price.
So, what is the intrinsic value of a stock? You may “google” a lot of theories about the definition. One notable theory is the present value of future cash flows of a company. It is about the forecasted cash a company will generate in a period and divided by discount rates.
Seem confused? Rest assured, and there is a more simple method to help you first find out the stocks before you decide to dig deeper.
The method will guide you to have a fundamental value about a company before crunching more numbers.
If a stock passes the initial test, you can further analyze the stock using the discounted cash flow model if you are interested. Otherwise, you have a general idea of whether the stock price is over-or undervalued.
Three things are worth being noted:
- Comparison of Price-to-Earning to Industrial average.
- Earnings potential.
- Operating Income(the income generated from primary business).
What Is the Price-to-market(P/E) Ratio?
In a simple word, it is the relation between a stock price and a company’s earnings. Generally, the P/E is lower; the stock price is lower.
You should note: no matter which theory is in use, assumptions are unavoidable, and it isn’t a promise a stock will rise even if the indicators are favorable. You should take it as one of your references.
1. Amgen (AMGN)
One member of the S&P 500, Amgen, specializes in human therapeutics worldwide. The company researches, develops, manufactures, and sells drugs for severe human illnesses. As the human life span increases, the markets for human therapeutics demand more of these from Amgen.
A drug manufacturer in Oaks, California since 1980, Amgen has seen steady revenue and operating income growth even during the pandemic. As the human therapeutic market is specially niched, it is well-positioned to benefit from the demand from aging populations worldwide. The company has a steady cash flow to develop and market more products.
The current P/E ratio for Amgen is about 20, while the average industry ratio is more than 30. It is a better time to invest in the biotechnology company and participate in its future growth. It declares a dividend yield of 2.5%.
2. Anthem (ANTM)
Formerly named WellPoint Inc.(a member of S&P 500), Anthem is a provider of network-based managed care plans of health benefits. It offers various health care programs for Government and private sponsors.
Some 60% of its business come from the Government’s Medicaid and Medicare programs, National Government Services, and Federal Employee Program. It serves 43 million members countrywide in offering administration services of health care and claims.
Over the past three years, it has recorded significant business revenue and operating profits growth from ten to twenty percent. The company predicts more business growth as people are more conscious of their health due to the Covid-19 breakout.
Anthem is an S&P 500; the company has more growing revenues and operating income over the past years. It also has an increasing cash flow to develop more new products to handle market demands.
The current P/E ratio is about 20 and undervalued compared to the industry average of more than 30. The company has situated itself in Indianapolis, Indiana, since 1944.
3.Archer-Daniels-Midland Company (ADM)
The company(one of the S&P 500) is a processor of agricultural products like oilseeds, cocoa, corn, wheat, and other related commodities and distributor to domestic and international markets.
Besides, the company is also an importer of other agricultural commodities and feed products and redistributes to the US and international markets. More than that, it is engaged in some related trade finance and products for industrial uses.
The global market has seen more growth for more product growth for varieties and will become more diverse. The company has seen steady revenue and operating growth in the past years. Though the cyclical cash flow issue may affect its business expansion near time, it doesn’t impede its growth capability.
The current P/E is 18 and undervalued compared to the industrial average of 25. Its dividend yield is 2.5%. The company headquarters is in Chicago, Illinois.
4. Bank of America (BAC)
The bank is one of the top 5 banks in the US. Headquartered in Charlotte, North Carolina, since it was established in 1784, it is engaged in widely diversified banking and comprehensive finance-related activities worldwide.
The company covers the wholesale, investment banking, and retail banking sectors. Up until now, it serves 66 million customers and has 4,300 retail financial centers as well.
Bank of America plays a dormant role in the banking business. Though the business is affected by the Covid-19, the bank believes they can get the company back to normal in the second half of 2021. The bank has ample cash to develop and expand businesses domestically and internationally.
Though the P/E(20) for the bank is higher than the industry average of 15, the industry average is still lower than the S&P 500’s average of 40. Therefore, I view it as an undervalued stock. The dividend yield is 1.86%.
5. Disney (DIS)
Disney’s business covers entertainment-related segments like film productions such as Marvel, Star Wars, theme parks, retail, hotel and resorts, clubs, cruise lines, TV entertainment, and streaming videos.
Hulu and Disney+, particularly the latter, are enviable product lines for one of the reasons for recent strong growth. The Disney+ could be a potential challenger to mighty streaming video giant: Netflix!
We have no reason to doubt Disney will stop developing her business empire once the pandemics subdue. Disney has clearly stated one of her plans is to expand the streaming video business besides other regular expansion, whether local or global.
The company suffers loss from the pandemic and yet is planning to re-open the business later this year. The revenue doesn’t decrease much during the pandemic period; however, the company has ample cash reserve to open for business later this year. You should watch it closely.
6. Davita (DVA)
Davita began operations in Denver, Colorado, in 1994. It provides kidney dialysis services for patients suffering from chronic kidney failure and end-stage renal disease.
Its operations include kidney dialysis centers and lab services in outpatient kidney dialysis centers. It also provides kidney-related services to hospitals, clinics, and patient homes. It also offers services to markets abroad.
Today, Davita has been expanding its business by increasing its revenue and operating profits steadily. As with other growing businesses, the company has more reserve for further business development.
The current P/E is 18 compared to the industry average of 25. It pays no dividend.
7. Expedia (EXPE)
The company set up operations in Seattle, Washington, in 1996. It is an online travel-booking company which provides services from ticket, hotel bookings to car rental services. Expedia is one of the travel-related services in the US. The market value is more than 25 billion dollars.
The company suffers from the loss due to worldwide shutdowns by the pandemic. However, the company anticipates more openings of places worldwide as the pandemic subsides and more people are vaccinated. Furthermore, the business may boost due to the pent-up demands from lockdowns.
Expedia has generated a sufficiently enough reserve to turn around in the second half of 2021. You should have reasons to be optimistic about the company outlook, and it should be on your radar list.
Expedia is a member of the S&P 500 and pays no dividend.
8. JPMorgan Chase & Co (JPM)
A bank with a history of more than two hundred years since 1766 was founded in New York, New York. As the bank of America, JPMorgan has been a financial banking giant on Wall Street, and its business covers every sector of finance.
From investment banking to trade and retail banking, the bank has business footprints all over the world. It is the biggest bank in the US, with a market value of 480 billion.
Despite low-interest rates and the pandemic, the bank hasn’t ground to a halt. 2020 saw a smaller profit than previous years but significant achievements among the peers.
JPMorgan has a pile of cash for upcoming business expansions. The P/E is 18 but higher than the industry average of 9. The dividend yield is 2.30%.
9. Snap-on Inc (SNA)
Snap-on is a B2B corporation manufacturing industrial tools such as tools, equipment, diagnostic, repair information, and system solutions for businesses and the Government. It also offers financing services to buyers. The company manufactures and markets its products domestically and internationally.
The company is an S&P 500 member and a top tools and accessories company in world markets through its precise scientific technology and tactical market strategies for the niche.
Like other businesses, the business has only slowed down a little than before the pandemic. The second half-year will see further growth as the business is resuming back to normal.
The current P/E is 20 and lower than the industry average of 30. The expectation is coming high for the company ahead. Snap-on Inc.(a member of the S&P 500) has had its headquarters in Kenosha, Wisconsin, since 1920. It has a 2% dividend yield.
10. Twitter (TWTR)
Twitter, built up in San Francisco, in California in 2006, provides a platform for people to exchange ideas and opinions and streaming videos. The platform offers advertisers to sell products and services.
Data analysis companies can get important data for market research. Today it has more than 190 million users worldwide and is still growing every day.
Like other social media, Twitter is not a regular guest in the spotlight and may be ignored by investors.
Though experiencing a slight shrinkage of profit due to operating costs, Twitter may increase the profit in the latest year as it has massive cash flow for further investment in the future.
Twitter has a loss this year though a profitable operating income; however, it has a strong client and growing client base and plays within 10 top positions in the world market. A smart investor should watch it closely.
I may suggest you look around the stock’s information before crunching any numbers to save others’ time. Timing is an opportunity for everything.
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