In the stock market, value is often found in places that other investors might miss. So, the first main quality of hidden gem stocks is their undervaluation. Next, they must have substantial earnings growth potential. Investors want growth since growing earnings usually means a growing share price.
However, these stocks are not easy to discover. Many present great risk or unreliable earnings growth. With the S&P500 up over 9% in the past month, it also appears less enticing to invest in individual stocks. The easier alternative would be dumping all of your money into the index.
So, let’s examine three undervalued stocks that have reliable and massive earnings growth potential.
Pfizer (NYSE:PFE) provides affordable medicine and vaccines to patients. Yahoo Finance analysts estimate that this stock will trade within a one-year price range of $32 to $75, with an average of $40.
Recently, Pfizer released a new COVID-19 vaccine for adults as well as children who are six months or older. The new shot gives increased immunity to the EG.5 and BA.2.86 variants. Also, Pfizer received FDA and CDC approval and recommendations for the booster shot. This may benefit PFE significantly. Specifically, in theory, people will be likely to obtain the new vaccine during the holidays and infection-prone colder seasons.
Currently, Pfizer is 20% undervalued, with a P/E ratio of 15.83x, compared to the sector average of 30.55x. Analysts speculate that the company will have a 10% upside for its lowest forecast, a 40% upside for its average, and a 169% upside for its highest forecast. Further, PFE has a net income of $10 billion, which is likely to skyrocket in the coming years.
Delta Air Lines (DAL)
Presently, DAL is trading at a solid valuation. With a P/E ratio of 7.18x, the stock is over 66% below the sector median P/E ratio of 21.45. Assuming a reversion to the mean, investors can expect a great potential for upside. Additionally, DAL’s EPS is expected to grow to $7.81 by 2025. This represents beyond double-digit growth from the current EPS of $5.32. With massive growth potential, Delta is positioning itself to be a stock with explosive growth.
Celestica Inc. (CLS)
Celestica Inc. (NYSE:CLS) is a Canadian-based electronic manufacturing service (EMS). CLS leads in providing high-quality and reliable design, manufacturing, and supply chain solutions. It offers a unique value proposition, a fortress of financial results, and a catalyst to grow in the AI market. It’s unsurprising that Yahoo Finance analysts expect a one-year price target of $32.25, as compared to of $26.86.
In mid-October, CLS announced two new 800G network switches. This aims to deliver higher speeds and agility for various data center and access deployments. The next generation of innovations will further serve to compound recent AI trends, helping it carve its spot as an industry leader.
Looking at its valuation, investors can see an immense discount with its P/E ratio of 12.17x, as opposed to its sector median of 19.95x. This undervaluation is also strengthened by its amazing year over year (YOY) EPS growth of 55%. While its profitability still has room to grow, investors would do well to take a look at CLS as a potential diamond in the rough.
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.