As I type this, equity investors can relate to the statement “nowhere to run, nowhere to hide.” The tech-heavy NASDAQ index is down over 4% in the five days ending Oct. 26. The S&P 500 is down over 3.4%. And even the blue-chip Dow stocks are down 1.89%. Nevertheless, if you’re looking to be a contrarian investor, it’s a good time to look for undervalued long-term stocks.
You may not find them in the tech sector, but there are no shortages of choices for investors who know what they’re looking for. For some investors that may mean technical signals like the Relative Strength Indicator (RSI). Others may look at fundamental signals like a low price-to-earnings (P/E) ratio.
It may be a tough time to buy stocks, but investors who are in it for the long haul know that these pullbacks create future opportunities. Price is price, but value is value. And that’s why you should consider these undervalued long-term stocks to help finish out the year.
Crown Holdings (CCK)
Undervalued long-term stocks aren’t always found in the tech sector. Case in point is Crown Holdings (NYSE:CCK). The company used to be known as Cork, Crown & Seal makes packaging products for the beverage industry. The company’s aluminum products promote sustainability and the circular economy.
Crown reported earnings on Oct. 24. The results were mixed with a miss on revenue and earnings that came in line with estimates. However, earnings were almost 20% higher on a year-over-year (YoY) basis. And in the next 12 months, earnings are expected to grow by another 16%.
CCK stock is up 17% in the last 12 months, but the recent market sell-off has pushed the stock negative for 2023. That looks like an opportunity for investors to buy a stock that is trading at a forward price-to-earnings (P/E) ratio of 12x.
In October 2023, the Relative Strength Index (RSI) for CCK hit 30 which is considered an Oversold indicator on three separate occasions. In each case, the stock bounced higher which indicates that there’s plenty of support from bargain hunters who are looking to add to their positions.
The key word in a bullish argument for Generac (NYSE:GNRC) is long-term. The stock is down over 16% in 2023 and in any time period you look at, the stock continues to fall. The reason is simple enough, revenue and earnings are down YoY.
It’s understandable as the housing market continues to be weak and a relatively calm hurricane season means that a backup power system is likely not top of mind for consumers in the company’s target market. But it also makes it hard to justify a stock that has a premium valuation at over 34x earnings.
But I can’t help noticing that earnings are expected to increase by 35% in the next 12 months. If that takes place, the stock could begin to justify a lower 15x forward valuation. Investors will get their first signal as to whether Generac can hit those numbers when it reports earnings on November 1, 2023.
GNRC stock has sliced through both its 50- and 200-day simple moving averages. It’s starting to look like a falling knife, but…the RSI for GNRC stock is around 19 as of this writing. That suggests that investors may be overcorrecting on the stock.
Recent revenue and earnings numbers make a strong case that support the recent price activity with Pfizer (NYSE:PFE) stock. Shares are trading near 2020 lows as revenue and earnings are down sharply YoY.
The driving factor is declining sales for its Covid-19 products. However, while the company is losing the outsized revenue and earnings from those products, it’s not losing revenue from them altogether.
More importantly, as Alex Sirois recently noted, Pfizer has used the cash it generated during the pandemic to develop its pipeline. The company has over a dozen drugs that could hit the market in the next 18 months. That doesn’t account for its proposed acquisition of Seagen (NASDAQ:SGEN) that will add even more candidates to its oncology portfolio.
And Pfizer is also rewarding shareholders with a dividend that has increased for 12 consecutive years and currently has a 5.25% yield. PFE stock currently trades at 8x earnings. However, earnings are expected to increase 95% in the next 12 months, which means the stock may not be undervalued for long.
American Express (AXP)
I recently put American Express (NYSE:AXP) on a list of stocks to sell. At that time, however, I acknowledged the bullish case for the stock. Specifically, Amex targets high net-worth individuals who have much lower delinquency rates. That adds a defensive characteristic to a business model that frequently comes under pressure at times of economic weakness.
My short-term concern is that overall spending could be curtailed in the short-term. Despite two consecutive quarters in which the company beat on the top and bottom lines, AXP stock can’t seem to catch a bid.
But, with the stock trading down 14% in the last three months ending Oct. 26, it’s trading at a level investors haven’t seen in about 18 months. And at 12x forward earnings, it’s valued inexpensively to the broader market. If you have time on your side, that makes the stock pretty compelling as one of the undervalued long-term stocks for your portfolio.
Medtronic (NYSE:MDT) makes this list of undervalued long-term stocks for a couple of reasons. First, MDT stock is trading near its 52-week low. Second, the stock also has an RSI of around 25 as of this writing. So the technical case is there.
What about the fundamentals? Medtronic trades at 26 times trailing earnings, but only about 13x forward earnings.
This suggests that MDT is a stock in need of a catalyst. The company doesn’t report earnings, but when it does, investors will want to hear more about its Aurora EV-ICD MRI SureScan system. This first-of-its-kind product recently received approval from the U.S. Food and Drug Administration (FDA) for treating dangerously fast heart rhythms that may lead to sudden cardiac arrest (SCA).
Medtronic has beat on the top and bottom lines in its last two earnings report. But the stock is down 21% in that time. Perhaps the third time will be the charm for MDT stock. In the meantime, investors get a solid dividend that pays a 3.92% yield. Plus, the dividend aristocrat has increased its dividend for 47 consecutive years.
Occidental Petroleum (OXY)
Any list of undervalued long-term stocks to buy in October 2023 needs to include at least one energy stock. Recently Warren Buffett added to his position in Occidental Petroleum (NYSE:OXY) so it’s a logical choice to include.
This isn’t the first time that Buffett has bought OXY stock in 2023. In fact, it’s the third time he’s bought the stock and his hedge fund Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) now holds over 25% of the company’s shares.
One reason that Buffett prefers Occidental is the company’s exposure to the Permian basin. This region accounts for 40% of U.S. oil production, and Buffett believes there’s more growth to come from this area.
Admittedly, retail investors can’t get the 8% dividend yield that Buffett gets from his preferred shares. Nevertheless, the current dividend only accounts for about 10% of the company’s earnings per share (EPS). And if earnings expand as projected, the dividend is likely to move much higher.
Dollar General (DG)
The latest reading on retail sales shows that even dollar stores are struggling with the effects of inflation. Dollar General (NYSE:DG) is one of the leaders in the sector, but the retail chain is forecasting slower sales as consumers continue to stick to the staple items.
The discount model relies on the idea that low prices on staple items will allow consumers to buy more at the store. That’s not materializing, and DG stock is down 50% in 2023.
But there’s a bright spot. The stock is up about 14% in the month ending October 26, 2023. Some of that is due to the return of the company’s former CEO, Todd Vasos. That won’t be enough to sustain the DG stock price growth if the company can’t get its arms around problems such as slumping same-store sales and retail theft.
However, the stock looks like it could break above its 50-day moving average. That still keeps it well south of its 200-day SMA, but it could give DG stock momentum heading into the holiday season.
On the date of publication, Chris Markoch had a LONG position in PFE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.