Stocks are looking a little pricey again. The rally in equities that started in November has raised the P/E ratio of the S&P 500 to around 26 times. That makes the Magnificent 7 stocks look a little less magnificent. This doesn’t mean you should sell those stocks. However, it can be a good time to look for value, especially undervalued stocks under $20.
Undervalued stocks under $20 can fit into a sweet spot in many portfolios. Because of their lower price, these stocks can provide more capital growth than large, blue-chip stocks that often carry a premium valuation.
On the other hand, stocks under $20 are not as volatile as penny stocks. One reason for that is that many of these stocks generate positive and growing earnings. Some may even pay a dividend.
A good way to find undervalued stocks under $20 is by using a stock screener. That’s what I did when pulling together this list. Stock screeners are a good way to start your research because you can fine-tune your list based on the specific fundamentals that you value the most.
Vale (VALE)
Vale (NYSE:VALE) is a global mining company that produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking. That’s the main driver of revenue, but the company is expanding into other metals such as copper and nickel. VALE stock is down 19.8% in the last 12 months due to lack of demand, specifically from China.
That’s expected to change in 2024. Carlos de Alba, an analyst from Morgan Stanley (NYSE:MS) reiterated its “Buy” rating on Vale with a price target of $18. The analyst cited the upside potential in iron ore demand from Chinese steelmakers.
In Vale’s most recent earnings report, it reported higher year-over-year revenue for the first time this year. And de Alba believes the company’s well-managed costs will fuel earnings growth, which Vale is projecting to increase by more than 21% in the next 12 months.
In addition to Morgan Stanley at least three other analysts have upgraded VALE stock, and several more have boosted their price targets. At just 6.8 times forward earnings, Vale seems like an obvious choice among undervalued stocks under $20.
CNH Industrial (CNHI)
CNH Industrial (NYSE:CNHI) designs, produces, markets, sells and finances agricultural and construction equipment on six continents. Infrastructure spending continues to work its way into the United States economy. That may have an impact on the country’s monetary policy, but for now it’s presenting investors with an opportunity to buy an undervalued stock.
CNH Industrial checks off a lot of the boxes investors are looking for in 2024. They’re part of both the construction and agriculture sectors, the company is recognized for their innovation and technology, and it’s a leader in sustainability.
It also appears to be significantly undervalued. CNHI stock is down 34% in the last 12 months despite seeing its revenue rise slightly year-over-year.
Analyst sentiment appears to be catching up. The consensus price target of 19 analysts gives CNHI stock an upside of 29.6%. With a forward P/E ratio of 6.7x, CNH Industrial looks like an attractive choice among undervalued stocks.
Transocean (RIG)
The energy sector is another good area to look for undervalued stocks under $20. If that’s the case, then Transocean (NYSE:RIG) looks like a solid pick here. The company provides offshore contract drilling services for oil and gas wells.
Lower demand led to lower oil prices in 2023. However, oil prices are beginning to tick higher, and the long-term expectation is still for crude oil price to climb more than $100 sometime in 2024, even without rate cuts.
As of October 2023, the company had a backlog of $9.4 billion. That takes away any concerns about revenue generation and earnings in the near term. Not that it’s been much of a concern, Transocean has increased revenue year-over-year in every quarter this year. Some of that is due to the company’s focus on its ultra-deepwater and “harsh environment” offshore drilling floaters–two areas which are strengths for the company.
The revenue outlook is likely to be bullish for earnings, which may be the one weak link with RIG stock. The company isn’t profitable, but analysts now forecast it will be in 2024. That supports a consensus price target that would have the share price increasing by 51% in the next 12 months.
On the date of publication, Chris Markoch 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.
