“Undervalued stocks” is a relative term — for some, it may mean a tech stock in a temporary dip; for others, it means deep value stock analysis involving obscure and esoteric multiples and calculations.
These companies blend the best of undervalued stock objectives. While some are less-than-profitable and may not be a value stock by most parameters, each has sufficient market strength and imminent tailwinds to propel higher per-share pricing. We’re rapidly entering an era where high-flying tech stocks relying on promises of AI and the like will stop being cash magnets — look to Tesla (NASDAQ:TSLA) and Meta’s (NASDAQ:META) price action for proof.
As an alternative, these stocks will likely start seeing increased investor cash inflows as mega-caps begin drying up and traders fight for diversification from a heavily concentrated market.
Garrett Motion (GTX)
Garrett Motion (NASDAQ:GTX) is a double threat when it comes to undervalued stocks: trading at low multiples (including just 8x earnings and 0.5x sales), the company also exists as an overlooked player in its wider industry: green tech and sustainable driving. The industrial manufacturer makes various automotive parts and add-ons for emission reduction and zero-emission tech, including alternative fuel engines and turbochargers for gasoline and diesel autos.
As pure-EV plays struggle amid waning consumer interest, as evidenced by skyrocketing hybrid and gasoline vehicle sales compared to electric counterparts, Garrett Motion stock acts as an intermediary for investors interested in long-term sustainability but aware that global EV adoption is a decades-long pipe dream at this point.
Recent stock suppression came from a fair-to-middling earnings report last week that included a 6% quarterly sales slippage, though annual sales stayed steady, and the company’s margins and free cash flow remained healthy. Ultimately, this undervalued stock is a victim of investors looking for the next high-flying growth opportunity. However, as wider economic forces kick the legs from under mega-caps currently controlling the market’s direction, small-cap value stocks like Garrett Motion are expected to become hot commodities.
Sturm Ruger & Company (RGR)
Sturm Ruger & Company (NYSE:RGR) is one of those critically undervalued stocks that, with just a hint of good news from its May 7th earnings report, could trigger a buying frenzy that elevates the company well past its current position. That position is a testament to its critically undervalued stock status, a 14.5x price-to-earnings ratio, and an equally slim 1.5x sales ratio. Both may seem reasonable, but when considering the company’s fall from grace after a downbeat November 2023 earnings report it hasn’t yet recovered from, it seems only a matter of time until Ruger reasserts itself on top of the wider firearm stock sector.
In the meantime, income investors can find something to love about Ruger’s stock as management steadfastly sticks to distributing 40% of its net income as dividends; this approach means that quarterly dividend amount may vary but also serves as a smart way for Ruger to ensure shareholder value remains high while keeping enough cash on hand for expansion and initiatives. That payout ratio equates to a respectable 2.32% dividend yield today, which jumps further to 3.78% when accounting for stock buybacks.
Costamare (CMRE)
Even as seafaring shipping concerns put competitor transport stocks at risk, containership chartering company Costamare (NYSE:CMRE) remains robust despite its status among undervalued stocks, trading at just 0.6x book value and 5.6x earnings. Unfortunately, for investors, waiting for Costamare to pop demands patience since, though global freight and charter prices spiked in early 2024, Costamare’s non-operating owner status means that its fleet is more than 87% booked for the remainder of the year and likely at less-than-ideal pricing.
Still, recognizing which way the winds are blowing, Costamare’s management is rapidly right-sizing operations and divesting smaller ships within the fleet while snatching up larger vessels to maximize cost efficiency as geopolitics make naval transport increasingly unpredictable.
I’ll be honest – Costamare is a strong buy at these levels, but investors should expect upward momentum to take some time to build before the stock sets sail again. In the meantime, Costamare’s healthy 7% total yield (roughly split between buybacks and distributions) should be enough to keep shareholders happy in the short term.
Sharkninja (SN)
Wide-ranging appliance manufacturer Sharkninja (NYSE:SN) stands out as one of today’s most undervalued stocks in the consumer sector despite receiving little attention from investors. Since its debut in last year’s challenging summer market, Sharkninja stock has proved nearly unbeatable. Its shares soared 130% higher post-listing in less than a year, massively outperforming the S&P 500.
But it’s not just Sharkninja’s short-term strength and resilience that make it stand out; the company’s solid operational fundamentals position it for significant growth in the coming years. as evidenced by its 20% annual sales increase since 2008, with no signs of slowing down in the foreseeable future.
Investors interested in snagging a piece of Sharkninja stock should do so before the company’s May 9th earnings report; muted annual guidance following the company’s fourth-quarter report included fairly flat sales for the first few quarters of 2024 – so even a modest revenue bump could send shares surging.
Vita Coco (COCO)
Beverage stocks like Monster (NASDAQ:MNST) and Celsius (NASDAQ:CELH) remain at the forefront of the market. Yet, undervalued stock Vita Coco (NASDAQ:COCO) is quickly becoming a notable contender among big-name beverage stocks. Unlike the highly competitive energy and standard sports drink markets, Vita Coco dominates the coconut water segment, commanding over half the market share.
To expand its purview, Vita Coco strategically partnered with British alcohol giant Diageo (NYSE:DEO) to venture into the rapidly expanding ready-to-drink alcoholic beverage sector, introducing a line of spiked coconut water options. While coconut water blended with Captain Morgan isn’t my bag personally, analysts forecast that the burgeoning market will hit 7.5% compound annual growth rate targets through 2029, positioning Vita Coco to secure a significant portion of this growth.
Financially, Vita Coco recently blew expectations away with a year-end earnings beat of 4%, driven by an impressive nearly 500% increase in net income and a profit margin of 9.4%. Investors upset about missing Monster’s stock mega-run may have a chance to redeem themselves with this undervalued stock.
Steelcase (SCS)
High-end home office and corporate furniture manufacturer Steelcase (NYSE:SCS) stands out as a promising undervalued value stock, but like others listed, it generally escapes retail traders’ attention. Steelcase has successfully adapted to the evolving work-from-home trends in the post-pandemic era. Its recent $0.10 quarterly dividend announcement translates to a 61% payout ratio and a 2.88% yield.
The company has swiftly recovered its financial footing after the pandemic’s challenges. Its latest quarterly earnings report showed a net income of $30.8 million, more than doubling the figure from the previous year. Moreover, Steelcase has consistently maintained sales of around $800 million over the past five quarters, indicating effective margin improvements without compromising quality.
In response to the ongoing shift towards remote work, Steelcase is strategically aiming for 5-7% annual sales growth and a target of 5% free cash flow margin relative to revenue over the next five years. Additionally, the company has significantly reduced its debt to adapt to the higher interest rate environment, thereby enhancing liquidity and minimizing interest expenses. These strategic moves position Steelcase as one of the top undervalued stocks within the lagging remote work stock segment.
Photronics (PLAB)
Photronics (NASDAQ:PLAB) occupies a unique position at the nexus of semiconductor and undervalued stocks, offering an appealing combination in a sector where many options are becoming increasingly expensive. This semiconductor company specializes in developing semiconductor photomasks, a critical but niche area within the semiconductor industry with significant implications for the future.
The photomasks from Photronics enhance the precision and accuracy necessary for microchip patterning, propelling advancements in cutting-edge fields like artificial intelligence and quantum computing. These fields demand increasingly complex and precise circuitry, and Photronics’ photomasks likewise contribute to the wider industry’s miniaturization of transistors and components. With its shares trading at a slim 12x price-to-earnings ratio and offering a blend of compelling value propositions, Photronics stands out as a prime candidate among a shrinking pool of undervalued stocks in the semiconductor sector, perfectly positioned at an intersection of current and emerging technologies.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.