The start of a New Year is a good time to scrutinize a portfolio and make some adjustments including adding undervalued stocks.
Stocks that enjoyed big runs last year may cool off, requiring investors to search out securities they can buy low in hopes of eventually selling at a higher price. Fortunately, there are still a lot of undervalued stocks available despite the market rally that occurred in 2023.
Stock market returns over the past year were uneven, with about 70% of the stocks in the S&P 500 lagging the index. Growth stocks outpaced value equities and most of the big gains were concentrated in mega-cap technology stocks.
This presents investors with an opportunity to buy quality names on the cheap before they too move higher. Here are seven of the most undervalued stocks to buy for 2023.
Starbucks (SBUX)
Retail coffee chain Starbucks (NASDAQ:SBUX) showed some promise in 2023. SBUX stock had a nice rally in the spring, with its share price hitting a 52-week high of $115 in May of last year.
However, since then the stock has pulled back nearly 20% and is once again trading below $95, making it one of the undervalued stocks to keep your eyes on.
The company’s shares are now trading at 26 times future earnings estimates, which is low by historic standards and presents a window of opportunity for investors to take a position while the price is favorable.
In November, Starbucks reported better-than-expected third-quarter financial results, and subsequently announced details of a new strategic plan that will see the retail coffee chain open 17,000 new locations by 2030 even as it cuts $3 billion in costs.
While ambitious, the growth strategy has done little to help lift SBUX stock. The share price is being weighed down by ongoing concerns about sales in China, where the economy is struggling, and unionization activity at home in the U.S.
General Motors (GM)
Shares of General Motors (NYSE:GM) have enjoyed a nice rally in recent weeks.
Since the start of December, the stock of the Detroit automaker has rallied 10%. The jump higher comes after General Motors announced it is raising its quarterly dividend payment to stockholders by 33% to 12 cents per share starting with the first payout in 2024.
The company also said that it will buy back $10 billion of its own stock over the next year and reinstated its 2023 earnings guidance.
However, even with the latest move higher, GM stock still looks undervalued. The company’s shares are currently trading at just five times future earnings estimates, which is why its among the more attractive undervalued stocks.
Also, the stock is up only 7% in the last 12 months and is currently trading at the same level it was at a decade ago. A note of caution that it will likely be awhile before GM recovers from last fall’s strike by the United Auto Workers union, a job action the company says cost it $800 million in lost vehicle production.
Pfizer (PFE)
There’s a lot of predictions among analysts that pharmaceutical stocks will rally in 2024. Drug maker Pfizer (NYSE:PFE) could use a boost.
The New Year is off to a promising start, with PFE stock up 4% on the first trading day of 2024. However, even with the bounce, Pfizer’s share price is still down 42% over the last 12 months.
Over five years, the stock is down 27%. It’s a big reversal after the company enjoyed a massive rally during 2020 and 2021 when expectations for its Covid-19 vaccine were running high.
In October, Pfizer lowered its full-year earnings and revenue guidance as global demand for its Covid-19 vaccines continues to slide following mass vaccination campaigns around the world.
The company said it now expects 2023 sales of $58 billion to $61 billion, which is down from previous guidance of $67 billion to $70 billion. Pfizer said that it cut its full-year forecast “solely due to Covid products.” PFE stock now trades at 16 times future earnings estimates and offers a dividend that yields nearly 6%, making it one of the undervalued stocks you don’t want to miss out on.
Nike (NKE)
From a valuation standpoint, Nike’s (NYSE:NKE) stock looks undervalued, especially after the sneaker company’s latest earnings print sent the share price plunging more than 10%.
NKE stock is now 40% below its all-time high reached in November 2021. Trading at 31 times future earnings forecasts, the stock of the world’s biggest athletic apparel maker looks inexpensive.
Long-term investors who are blessed with patience may want to do some bottom fishing after Nike’s latest financial results.
In truth, Nike’s recent print was better-than-expected. It was the forward guidance that spooked investors. The company reported quarterly earnings per share of $1.03 versus 85 cents that had been expected among analysts.
Q2 revenue was $13.39B, slightly below the forecasted $13.43B. Nike’s gross margins increased for the first time in 18 months, and inventories dropped 14% to $8 billion.
Unfortunately, Nike said that it now expects full-year revenue to grow 1%, compared to a prior outlook of up mid-single digits. For the just completed fourth quarter of 2023, Nike expects revenue to be slightly negative. That news sunk NKE stock. But there is a buy-the-dip opportunity here.
General Mills (GIS)
Processed consumer foods company General Mills (NYSE:GIS) is another stock that has been knocked lower over the past year and looks undervalued at current levels.
In the last 12 months, GIS stock has fallen 20%, including a 5% decline after the company’s latest earnings were delivered in late December. Like Nike, the maker of Cheerios and other cereals lowered its sales guidance for the rest of its current fiscal year, sending its share price into retreat.
General Mills reported earnings per share of $1.25 for what was its fiscal second quarter. That beat Wall Street forecasts of $1.16 per share. Revenue came in at $5.14 billion, which was below expectations of $5.35 billion.
As for guidance, General Mills said that it expects sales of down 1% to flat. Previously, the company had forecast 3% to 4% growth for the entire fiscal year. The company blamed its reduced outlook on weak consumer spending that has led to “…lower organic sales growth.”
GIS stock trades at 16 times future earnings expectations, which is reasonable, and pays a quarterly dividend that yields a strong 3.56%.
FedEx (FDX)
Another casualty of earnings season has been delivery and logistics giant FedEx (NYSE:FDX), whose share price has dropped 10% since it delivered its latest financial results right before Christmas.
To be sure, FDX stock had enjoyed a bull run for most of 2023 and its share price was still up 42% over the last 12 months. However, the stock is only trading at 14 times future earnings estimates, which is low for a company of its size, and it offers a dividend payment that yields 2%.
FedEx reported earnings per share of $3.99 compared to $4.18 that was expected. Despite the miss, the company’s earnings were up more than 25% from a year earlier due largely to cost-cutting initiatives.
Revenue in the latest quarter declined 3% to $22.17 billion from a year earlier, also missing analysts’ estimates. Looking ahead, FedEx said that it expects a low-single-digit decline in revenue for the entire fiscal year, down from a previous forecast of flat sales.
It was the second consecutive quarter that FedEx lowered its sales outlook, citing weakening demand. However, the company said that its operating income should improve in the months ahead due to its ongoing cost-cutting plan.
AutoZone (AZO)
Similar to the pharma sector, many analysts are forecasting a recovery in the automotive industry next year. This would be good news for AutoZone (NYSE:AZO). The automotive parts retailer gained only 6% in the past year, while the S&P 500 index gained 24%.
The middling performance comes despite the company reporting a string of better-than-expected financial results.
Most recently, the company announced EPS $32.55, up nearly 20% from $27.45 per share a year earlier, and above analyst forecasts for $31.57. AutoZone’s Q1 revenue reached $4.19 billion, a 5% increase from last year, in line with Wall Street expectations.
The company said its same-store sales were up 1.2% domestically and more than 25% internationally. Demand for its Do-It-Yourself repair kits remains strong as consumers opt to keep existing vehicles.
The stock of AutoZone trades at a reasonable valuation of 18 times future earnings, though it doesn’t offer shareholders a dividend payment.
On the date of publication, Joel Baglole 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.
