While it’s tempting to target the most popular ideas in the market right now, it’s worth diversifying your holdings with undervalued sleeper stocks. Don’t ignore the usual suspects if you’ve got to scratch the itch. However, the hidden gems may end up taking you further.
One of the key reasons to consider undervalued sleeper stocks is the threat of the rotation. With so much money pouring into artificial intelligence and other hot industries, it’s inevitable that at least some major hedge funds will extract their funds and redirect them to a more viable space. Here, the idea is to beat the fat cats at their own game.
Second, heavily touted names sometimes tend to underperform. On the flipside, underappreciated ideas may potentially offer a long pathway to unfettered gains until resistance kicks in. With that, below are a few ideas to consider regarding undervalued sleeper stocks.
Cheniere Energy (LNG)
I must admit that Cheniere Energy (NYSE:LNG) got a little bit tricky. Prior to President Joe Biden’s up-tempo State of the Union address, things weren’t looking good for the Democrats. Let’s face it – Biden isn’t the most exciting candidate out there. However, with his invigorated demeanor combined with a bizarre SOTU rebuttal, this election appears much more competitive.
Still, even if the Democrats were to retain power, I believe they would need to adopt a nuanced approach with LNG. I’m talking about both the stock and the acronym, which stands for liquefied natural gas. Given the geopolitical climate, I imagine that supplies of natural gas to western nations will be limited. That’s going to raise demand, which should benefit Cheniere.
To be fair, analyst anticipate a down year in 2024, with average revenue projected to hit only $16.6 billion. Last year, it was $20.39 billion. However, in 2025, sales may jump up to $20.66 billion, with a high-side estimate of $24.95 billion.
Currently, LNG stock only trades for 3.85X trailing-year earnings. I’d look closely at Cheniere as one of the undervalued sleeper stocks.
Baidu (BIDU)
A Chinese multinational technology company, Baidu (NASDAQ:BIDU) attracted significant attention throughout the past decade. As well, BIDU screamed higher in early 2021. Since then, circumstances have not looked promising for the internet specialist. Since the start of the year, BIDU lost more than 12% of equity value. In the past 52 weeks, it’s down 24%.
However, data compiled by Yahoo Finance presents a different take. Analysts believe that by the end of the current fiscal year, sales will reach $20.19 billion. That would represent a 7.8% gain from last year’s haul of $18.73 billion. In 2025, revenue may jump to $21.66 billion, a 7.3% increase from 2024’s projected top line.
In focus is the company’s AI business. Unlike other companies that are related to digital intelligence, BIDU stock has obviously not benefited from the surge. That could change, especially if Chinese economic data improves.
Presently, BIDU trades at only 9.68X forward earnings. That seems awfully low. Also, analysts peg shares a unanimous strong buy with a $164.52 price target, projecting over 62% upside potential.
Lamb Weston (LW)
An American food processing company, Lamb Weston (NYSE:LW) is one of the world’s largest producers and processors of frozen French fries. It also specializes in waffle fries and other frozen potato products. Fundamentally, Lamb Weston could benefit from shifting consumer trends. Under difficult economic conditions, households may eschew eating out for cooking at home. Thus, food producers could benefit.
However, Wall Street isn’t quite seeing it that way. Since the start of this year, LW lost 4% of market value. However, in the trailing year, it’s up 6%. I think that’s more reflective of the underappreciated relevance of LW. For the current fiscal year, experts believe that sales will land at $6.9 billion, up 29% from last year’s haul of $5.35 billion.
Notably, they also project earnings per share to reach $6.02. That would be a significant leap from 2023’s EPS of $4.68.
Finally, shares only trade hands at 13.29X trailing-year earnings. That’s lower than the sector median of 18.2X. Rated a unanimous strong buy with a $133 average price target, Lam Weston is one of the undervalued sleeper stocks to consider.
On the date of publication, Josh Enomoto 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.
