The markets are far from efficient right now, with several undervalued stocks that boast historically-stable cash flows, scandal-free operations, and a robust profitability profile, relegated to the background. Most of the column inches and headlines are reserved for hyper-growth stocks and exciting recovery plays.
Post-pandemic, the outlook for several exceptional stocks remains pessimistic because of unforeseen losses and difficulties, offering investors access an attractive entry point previously unavailable available during their best years.
Today’s most prolific traders and investors have repeatedly shown that a well-informed value investing trading strategy can result in a very profitable career. Long-term and income investors covet undervalued stocks that gives them access to stable fundamentals, growth prospects and a steady income.
The following seven companies are excellent examples of mature enterprises trading at a discount:
- Delta Air Lines (NYSE:DAL)
- BP (NYSE:BP)
- ConocoPhillips (NYSE:COP)
- Kellogg Co. (NYSE:K)
- Advanced Micro Devices (NASDAQ:AMD)
- American Express Company (NYSE:AXP)
- The Boeing Company (NYSE:BA)
Undervalued Stocks to Watch: Delta Air Lines (DAL)
By several accounts, Delta Air Lines is one of the largest U.S. carriers. Due to its premium offerings, credit card partnerships, and impressive cost-cutting measures, the legacy carrier survived one of the toughest times in its history last year, albeit with some help from billions of dollars in government stimulus money.
Now that we are several months into the recovery, a case can be made for adding DAL stock to your portfolio, especially considering the attractive price point; DAL stock is down 9% in the last three months. Plus, things are also looking up from an operational standpoint. After five consecutive quarters of losses, the legacy carrier finally showed some teeth and reported a profit of $652 million in the second quarter, handily outpacing consensus estimates and easily surpassing the year-ago loss figure of $12.4 billion. Meanwhile, total revenue of $7.13 billion beat analyst expectations of $6.22 billion in revenue.
International travel demand is still weak, but the best thing DAL has done is play its cards right and make sure costs come down. DAL lost $2.3 billion in the first three months of the year, but the company said it started to produce positive cash of around $4 million a day in March. Overall, things are looking up for the carrier.
British Petroleum has been slow to recover from pandemic-induced blues. Shares are still off approximately 32% from the end of 2019 and have underperformed compared to other oil & gas majors. None of them have recovered to pre-pandemic levels, but BP has struggled a bit more. You can chalk that up to British Petroleum’s strategy to shift towards a low-carbon footprint energy. As part of this policy, the energy giant has sold off several environmentally damaging projects and invested heavily in low-carbon energy projects.
It’s an interesting strategy considering how important environmental concerns are becoming to the investment world. Investors might be spooked at this stage, but diversification is excellent for the bottom line in the long run.
In the meantime, investing in BP requires patience. It still has sizeable oil & gas assets, and as the world continues to get back to normal, things will only get better from here on in. With shares trading at 7.4 times forward price-to-earnings and the company offering a juicy dividend yield of 5.28%, this is one energy giant looking very attractive for a value investor.
Undervalued Stocks to Watch: ConocoPhillips (COP)
ConocoPhillips is one of the biggest independent energy producers in the world. Much like other energy companies, COP had a tough 2o2o. But the stock is slowly picking up steam and is up nearly 10% in the last month. It has been in the news recently due to the completion of its acquisition of Concho Resources, which is based in the Permian Basin area of Southeast New Mexico and West Texas.
ConocoPhillips has cited the increased production volumes due to the recent Concho acquisition as one of the main reasons it reported a second-quarter earnings beat. Adjusted earnings finished at $1.7 billion, or $1.27 per share, beating consensus estimates of $1.10 per share and coming in way ahead of last year’s adjusted loss of $1.0 billion, or ($0.92) per share. Six-month 2021 adjusted earnings came in at $2.6 billion, or $1.97 per share, versus a loss of $0.5 billion, or ($0.47) per share during the same period last year.
The positive earnings beat comes on the heels of a market update held on June 30. The document laid out an aggressive 10-year operating plan on June 30 to grow oil production by about 3% per year and pursue a disciplined strategy to pursue robust growth and reward shareholders. In connection, ConocoPhillips hiked 2021 share repurchases by $1 billion. That brings the total planned return of capital to shareholders for this fiscal year to approximately $6 billion. Despite all of these positive announcements, shares trade at a very reasonable 11.3 times forward P/E.
Kellogg Co. (K)
Kellogg is a global food company operating several prominent brands. Cheez-It crackers, Pringles, Frosted Flakes, Eggo waffles, Pop-Tarts and Froot Loops are some of its more prominent brands. Kellogg was originally founded in 1906 with a focus on healthy cereals. However, as time went on, it added high sugar products to its portfolio as well. Despite the ultra-competitive retail space, Kellogg has held its own for well over 100 years. Despite the pandemic, it posted a net income of $1.3 billion on net sales of $13.8 billion last year.
In the last five years, the top line has grown by just 1.3%. That might seem minuscule. But what can you expect from a company that has been around for so long? The better stat is earnings growth, which is 16.7% in the last five years. The main reason for this growth has been the company moving towards warehouse distribution instead of storing distribution. The change has led to healthy margin growth.
Kellogg is also conscious of pivoting away from high sugar products and investing in healthy breakfast cereals as people get more health-conscious. In line with that strategy, the company sold its cookies and fruit snacks businesses for $1.3 billion to Ferrero Group in 2019. Meanwhile, it has been acquiring several healthier product lines and opening up international markets.
Despite all these positive developments, the stock basically has a net zero return in the past year. All of these factors make K one of the best undervalued stocks out there.
Undervalued Stocks to Watch: Advanced Micro Devices (AMD)
AMD stock is down 2% in the last month, a rare pullback for the semiconductor company. This is even more surprising, considering AMD is one of the linchpins of the U.S. strategy to counter the current semiconductor crisis.
It may be a simple case of investors taking their profits and investing in other areas. But the fundamentals of this company are rock solid. According to CNBC data, AMD has outperformed earnings estimates in the last five quarters in a row. Looking ahead, CEO Lisa Su said, “We now expect our 2021 annual revenue to grow by approximately 60 percent year-over-year driven by strong execution and increased customer preference for our leadership products.”
Investors will also likely be looking forward to completing its $35 billion acquisition of competitor Xilinx (NASDAQ:XLNX). The merger will help bolster the revenue and earnings of AMD moving forward.
There is one other factor worth mentioning when discussing AMD, that of leadership. AMD appointed Lisa Su as CEO in 2014. After taking the helm, she has transformed the chipmaker, helping it overtake major rival Intel (NASDAQ:INTC), which has stumbled in recent years to maintain its dominance. And with Lisa Su at the helm, you would never expect AMD to become complacent.
American Express Company (AXP)
American Express is one of the best financial stocks out there. Shares of the payment processor have returned 59% in the last year. Earnings are up 128% on a trailing 12 months (TTM) basis compared to a 2020 EPS of 3.77. During the pandemic, it had a tough time because of the prevailing economic conditions. Shopping activity nosedived, and the savings rate increased exponentially.
But even during these testing times, AXP was able to do quite well. Revenues for 2020 were $36.1 billion, down 17% from $43.6 billion a year ago, but still a respectable figure. More recently, AXP unveiled second-quarter results, which confirmed that its comeback is well and truly in full swing. Net income of $2.3 billion, or $2.80 per share, is very healthy in comparison to $257 million, or $0.29 per share, in 2020. Total revenues soared 33% to $10.2 billion from $7.7 billion a year ago.
Commenting on the future, Chairman & Chief Executive Officer at American Express Stephen Squeri said, “As we look ahead, we are increasingly optimistic that the momentum we’ve generated will continue given the strength we see in our core business, particularly in the U.S., even as the pace of the recovery remains uneven in different regions around the world. Based on current trends, we are confident in our ability to be within the high end of the range of EPS expectations we had for 2020 in 2022.”
As the economy picks up, AXP stock will undoubtedly rise substantially, which is why it makes it on this list of undervalued stocks.
Undervalued Stocks to Watch: The Boeing Company (BA)
Boeing recently released a very bullish commercial market outlook report. Despite the novel coronavirus pandemic, the aerospace company forecasts robust demand for the industry in the coming 20 years. The global fleet of commercial airplanes stood at 25,900 in 2019. According to Boeing, this figure will increase to 49,405 planes by 2040, a jump of 90.75%.
The report also addressed the issue of global air traffic. BA predicts global travel to recover to 2019 levels by late 2023 or early 2024. Additionally, Boeing highlighted an interesting fact that after every financial crisis, retirement rates increase, meaning we could see higher orders for BA in the not too distant future.
BA stockholders will take heart from the report. The company has an order backlog of 4,164 planes, out of which 3,325 units represent the 737 MAX. Although passenger numbers at TSA checkpoints are getting better, they are still way off pre-pandemic numbers. However, you could see BA as more of a long-term value play. United Airlines and Southwest Airlines have made new orders, and with the economy reopening, you can build a case around investing in this stock. In the last three months, shares are down 12%, so this is trending at a very attractive price point.
On the publication date, Faizan Farooque did not have (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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.