If you’re looking for undervalued stocks, you don’t have to look far, despite the rally. The past year or so has been a wild rollercoaster ride for investors. While the major indexes kept chugging along to fresh highs, propelled by the ‘Magnificent 7,’ plenty of other stocks got left behind in the dust. It’s been a tale of two markets – the haves and the have-nots, if you will.
But here’s the thing: Just because a stock has been stuck in the mud doesn’t mean it’s destined to stay there forever. In fact, some of the most multibagger opportunities are lurking among these beaten-down stocks.
Don’t get me wrong, I’m not knocking the mega-caps – those cash-gushing giants have earned their place in every portfolio. But when it comes to mutibagger returns, the big money gets made by scooping up the unpolished gems before Mr. Market wakes up. Let’s take a look at the undervalued stocks!
Undervalued Stocks: Six Flags Entertainment (SIX)
Six Flags (NYSE:SIX) has been trading more like a travel stock lately, and it’s not hard to see why. This theme park is tied to the ebb and flow of tourism trends. When the pandemic hit, Six Flags was forced to take on a boatload of debt. It is now at $2.54 billion. That’s a hefty burden for a company with a current market cap of only $2.1 billion and a measly $60 million in cash reserves.
The stock has essentially been stuck in neutral for the past couple of years, but travel demand has already roared back to pre-pandemic levels. All that’s really been holding Six Flags back is interest rates. With a net income of $86.5 million for 2023 on revenue of $1.56 billion, the company is clearly profitable. However, interest expenses ate up $156.3 million, so any improvement on that front would lead to much more in profits.
Analysts also see earnings per share growing from $1.8 in 2024 to $2.5 by 2026 as that debt burden eases. At just 14 times forward earnings, shares look like an absolute steal for a business poised to enjoy some serious margin expansion once rates stabilize. This could be a multibagger in the making if the stars align.
OptimizeRx (OPRX)
OptimizeRx (NASDAQ:OPRX) delivers prescription drug coupons and co-pay cards straight to doctors and pharmacists through their EHR and e-prescribing platforms. It’s an innovative model that’s clearly resonating, with the Street forecasting a near-doubling of EPS from 2023 to 2025, meaning you’re paying 22x 2025 estimated EPS. That’s pretty cheap considering the margin expansion. Revenues are expected to swell from $69 million to $113 million over that same timeframe.
OptimizeRx is experiencing exponential topline growth, but the market has not reacted to their stellar guidance, presenting a potential opportunity for a valuation re-rate in 2024. Moreover, the acquisition of Medicx is expected to boost OptimizeRx’s revenue growth and improve offerings to existing customers.
OPRX has also been able to capture a 90% share of top pharma manufacturers as clients, and 60% of its revenue is coming from these clients. Another important point is revenue retention, which stands at 93% and growing quarter-over-quarter. I see significant upside potential here.
With growth like that, you’d think shares would be trading at a premium. But as it stands, OPRX is changing hands for less than 3 times forward sales – a bargain-basement valuation.
Undervalued Stocks: Dollar General (DG)
I’ve been pounding the table on Dollar General (NYSE:DG) for quite some time now, and it’s finally paying off as the stock starts reclaiming its former glory. When a retailer like DG gets caught up in the broader market’s overreaction to economic conditions, that’s an obvious buying opportunity. The company has a very resilient business model.
Moreover, Todd Vasos, who doubled the market capitalization of DG from June 2015 to November 2022, was reappointed as CEO in October 2023. I believe the new CEO can double it from here again.
Wall Street simply got way too bearish on these discount retailers last year. But as inflation pressures inevitably ease and consumer spending power returns, the likes of Dollar General will be first in line to benefit. This is a best-in-breed operator trading at a discount to historical norms – and that’s before even considering the potential for significant margin expansion as cost pressures abate.
I wouldn’t be surprised to see DG shares double from here over the next two to three years.
Newell Brands (NWL)
Let’s be honest, Newell Brands’ (NASDAQ:NWL) chart isn’t pretty. This company has been through the wringer over the past few years, with its downward spiral starting well before the pandemic only to accelerate in 2020. But I’m bullish on NWL – and here’s why.
For starters, we’ve seen clear signs of a turnaround brewing lately. The stock has been trading sideways since October 2023, and I believe it’s currently sitting in a prime buying zone at levels not seen since the Great Recession lows. Keep in mind, that Newell is still profitable, so there’s likely limited downside risk from these depressed prices. It’s already trading at just 13 times forward earnings with significant margin expansion expected in the coming years.
Analysts see EPS ramping up from 57 cents in 2024 to $1.1 by 2028 as the company gets its groove back. That should provide plenty of fuel for a sustained recovery rally. And even if the turnaround takes longer than expected, you can collect NWL’s 3.8% dividend yield while waiting for better days.
What really gets me excited here, though, is the company’s recent earnings beat. Newell topped analyst estimates by 5% on the top line and a staggering 31.5% on EPS in Q4. To me, that’s a telltale sign that Wall Street’s pessimism has gone too far.
Undervalued Stocks: United Natural Foods (UNFI)
As the largest publicly traded wholesale distributor of health and specialty foods in the U.S. and Canada, United Natural Foods (NYSE:UNFI) is a key cog in the grocery supply chain. It’s also the main supplier for none other than Whole Foods Market – not too shabby!
UNFI’s chart looks pretty ugly if you zoom out to its longer-term history. But that’s precisely why I’m intrigued. The stock has declined to bargain-basement valuation levels from which it has bounced back and delivered multibagger returns on numerous occasions before.
Sure, we’re only looking at low single-digit top-line growth going forward. But the real excitement here is on the margin front. After posting slight losses in 2024, analysts expect United Foods to have a significant EPS recovery in the years ahead. And that’s likely not even factoring in the impact of interest rate cuts.
United Natural Foods is saddled with a whopping $3.7 billion debt load – a massive burden compared to its current $615 million market cap. As rates inevitably come down, this highly leveraged business should see its interest expenses plummet, providing an added tailwind for profits and cash flows.
Between the cyclical upswing, improving margins, and lower interest costs, I wouldn’t be surprised to see UNFI serve up multibagger gains again over a multi-year period from today’s rock-bottom prices. Sometimes the ugliest charts make for the most beautiful contrarian plays.
JD.Com (JD)
Chinese stocks have been some of the biggest disappointments in recent years, mostly thanks to that country’s zero-Covid policies followed by harsh regulatory crackdowns on its tech titans. The resulting deflationary spiral has left many of China’s former high-flyers trading at fire-sale valuations.
But I believe snapping up some of these high-quality companies with real staying power is a smart move – even if they look downright boring today. JD.Com (NASDAQ:JD) is a prime example of one of China’s biggest e-commerce and logistics juggernauts.
JD’s growth has slowed to a crawl for now amid the broader economic malaise. But with China finally starting to loosen its monetary policy and dole out subsidies to revive its stock market, that could change in a hurry. Even based on current projections, we’re still looking at double-digit annual EPS growth and mid-single-digit revenue expansion – not too shabby considering the macro backdrop.
If China’s stimulus efforts gain serious traction, however, JD could easily start getting hot again.
Betterware (BWMX)
Betterware (NASDAQ:BWMX) is a direct-to-consumer company operating in Mexico, manufacturing and distributing innovative home organization products through a unique two-tier household selling model.
In Q4, Betterware exceeded earnings and revenue forecasts (beat top-line estimate by 11%), with analysts now projecting 39% EPS growth for 2024. The stock trades at just 8 times forward earnings. The 6.35% dividend yield also appears sustainable given the current growth trajectory and leading industry position.
With just 4% market penetration in Mexico so far, Betterware has a vast runway ahead for further domestic expansion. It is also still down 60% from its peak despite gaining 80% in the past year. Thus, I see it as as one of the best undervalued stocks you can buy.
On the date of publication, Omor Ibne Ehsan 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.
