Under a frenzied environment, it’s normal to overpay for certain hot investments – but this framework also drives the case home for undervalued stocks Wall Street overlooked. Stated differently, publicly traded enterprises that stood well outside the spotlight may offer calmer, more intelligence-focused narratives.
To be sure, on occasion, traversing the road commonly traveled can yield shareholder profits. Sometimes, strength begets even more strength. However, genuinely undervalued stocks tend to deliver more confidence to market participants. At their core, these prospects may be inherently de-risked. As a result, more room for upswing exists.
Another factor to consider is that you may be less likely to hold the bag if a sudden downturn materializes. A major risk factor impacting overhyped ideas is the heavy exposure that other investors have. As prices rise, so does the pressure. With stocks Wall Street overlooked, that pressure just isn’t as prominent.
Of course, any market idea carries dangers of downside. However, ahead of uncertainties, these undervalued stocks may offer a superior alternative to the usual suspects.
British American Tobacco (BTI)
A controversial idea among undervalued stocks Wall Street overlooked, British American Tobacco (NYSE:BTI) might not even seem that relevant. As multiple sources have pointed out, global smoking prevalence decreased significantly over the past several years. Further, BTI itself suffered a substantial erosion of market value, losing 27% since the January opener.
Nevertheless, for agnostic speculators, BTI could be an intriguing bargain prospect. Fundamentally, while smoking rates have declined globally, in many countries, either no change occurred or prevalence increased. Further, the vaping or e-cigarette sector has grown in popularity. Just in the U.S., revenue for the space will reach $8.3 billion at year’s end. Further, the segment may expand at a compound annual growth rate (CAGR) of 3.93% from 2023 to 2028.
It’s also worth pointing out that BTI enjoys strong margins across the board. It’s also been consistently profitable over the past decade. Even so, shares trade at only 6.22X forward earnings, lower than the sector median 9.78X. Thus, it’s an intriguing prospect for undervalued stocks.
Exxon Mobil (XOM)
A hydrocarbon energy giant, it’s not too hard to see why Exxon Mobil (NYSE:XOM) ranks among the stocks Wall Street overlooked. With the political and ideological winds favoring green and renewable energy solutions, Exxon appears to be battling with inevitability. At the same time, contrarians might want to give XOM another look. It just might be more relevant than it appears.
For one thing, the world continues to run on oil. Yes, electric vehicles and other alternatives to the hydrocarbon paradigm have gained ground. Still, the infrastructure remains a fossil-fuel-dominated arena. As well, hydrocarbon products such as gasoline command high energy density. Unfortunately, you can’t cheat scientific realities.
Further, the company holds its own financially. For example, its three-year EBITDA growth rate clocks in at 37%, above 75.39% of its peers. It’s also consistently profitable, aside from an understandable hiccup in 2020. Also, it trades at a price/earnings-to-growth (PEG) ratio of 0.78X, below the sector median 0.91X. Thus, it’s very much one of the undervalued stocks.
Archer Daniels Midland (ADM)
A multinational food processing and commodities trading firm, Archer Daniels Midland (NYSE:ADM) offers inherent relevancies due to the core essential nature of its business. That’s a mighty long way of saying that humans need to eat. Unfortunately, ADM is also one of the stocks Wall Street overlooked and some might argue for good reason. It’s down about 23% over the past 52 weeks, in part due to shortfalls in plant-based proteins.
Obviously, that’s a bit of a gut punch. Nevertheless, this miss should start reversing itself over the long run. In particular, members of Generation Z apparently love plant-based food. As this youthful age cohort grows in purchasing power, they should drive this category of protein higher. Therefore, I like the valuation that ADM trades at. Specifically, that’s 10.77X forward earnings, below the sector median 14.95X.
Of course, forward earnings is a tricky topic because it’s a projection. Still, the fundamentals are compelling. As well, ADM benefits from solid operational stats (16.4% three-year revenue growth rate). It’s one of the undervalued stocks to check out.
Everest Group (EG)
A Bermuda-based provider of reinsurance and insurance, Everest Group (NYSE:EG) might not be the most popular idea among undervalued stocks. Nevertheless, it deserves to be on your radar. Reinsurance companies – often labeled insurance for insurers – provide a critical role in risk management.
From a personal perspective, you and I are familiar with primary insurance companies. Think about your auto insurance or healthcare provider: these are the entities with which you deal directly. But insurance companies can’t be saddled with handling the potential volatility of the unknown. So they turn to reinsurance specialists.
To be sure, Everest is tied to a boring industry. However, the positive here is that it continues to march steadily higher. Further, demand should remain fairly stable over the long run. Unsurprisingly, investment data aggregator Gurufocus stated that Everest enjoys four positive financial signs and no glaring negatives.
As a bonus, it’s priced at a bargain rate, with shares trading at 5.9X forward earnings. In contrast, the sector median stands at nearly 10X.
ZTO Express (ZTO)
Easily one of the riskiest ideas among undervalued stocks Wall Street overlooked, ZTO Express (NYSE:ZTO) isn’t for the faint of heart. Over the past 52 weeks, ZTO slipped about 24%. That’s not what makes me concerned. Rather, in the trailing month, shares plunged more than 10%. With the volatility, ZTO is steadily approaching its post-Covid lows.
However, from a contrarian angle, the China-based express delivery specialist could be an intriguing opportunity. Per its website, ZTO owns more than 20% of market share of its home nation’s parcel volume. Granted, concerns about the viability of the Chinese economy have stunted many of the country’s previous stock winners. Still, China could piggyback off the U.S.
As the number one and two economies of the world, what’s good for the U.S. could trickle down to the Asian juggernaut. If so, ZTO should benefit from the increase in commercial activity.
Adding to the enthusiasm, shares trade at a forward multiple of 11.72X, below the sector median 12.29X. And analysts rate shares a strong buy with a $33.83 price target, projecting almost 69% growth.
Gogo (GOGO)
Moving to the most speculative fare among undervalued stocks Wall Street overlooked, Gogo (NASDAQ:GOGO) might be worth a look for aggressive gamblers. Presumably, it’s going to be a wild ride in the near term. Since the January opener, GOGO gave up about 35% of equity value. And it’s not entirely clear when the negative acceleration will end.
That said, the underlying business could be a contrarian opportunity in the making. Per its public profile, Gogo provides in-flight broadband internet service and other connectivity solutions for business aircraft. Naturally, we’re talking about a highly specialized field and a narrow – low volume, high profit – addressable market. But circumstances could shine favorably on Gogo.
According to MarketsandMarkets, the business jet sector reached a valuation of $31.1 billion in 2022. By 2030, this segment could hit $41.8 billion, representing a CAGR of 4.2%. As long as the underlying industry grows, Gogo at least enjoys the prospect of increased sales.
Right now, shares trade at 8.16X trailing earnings, below the sector median 16.42X. Also, analysts peg shares a moderate buy with a $17.50 price target, implying over 80% upside.
Hello Group (MOMO)
Another China-based company, Hello Group (NASDAQ:MOMO) bills itself as a leading player in China’s online social networking space. Through its various platforms and properties, the company enables its users “to discover new relationships, expand their social connections, and build meaningful interactions.” That’s the beat-around-the-bush version of saying it’s a dating app.
Just by the numbers, Hello Group enjoys a massive total addressable market. Further, with Covid-19 fears in the rearview mirror, people are eager to reestablish their normal activities. Going out and meeting that special someone falls right into that category. According to Statista, online revenue of dating services in China is projected to grow from current levels.
And we’re not just talking about garden-variety growth. Rather, all segments of dating – matchmaking, e-dating and casual dating – are projected to expand from 2023 to 2028. Given this forecast, MOMO’s forward earnings multiple of 4.58X (below the sector median 17.27X) might seem a bargain.
Finally, analysts rate shares a moderate buy with an average price target of $15. That comes out to over 124% projected upside.
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.
