10 Most Undervalued Stocks In May 2021

Key Takeaways:


The stock market has proven to be a competent wealth-building machine for those who respect and abide by a strict process. Today’s most prolific traders and investors are living proof that the convergence of a proper education and a proven system can result in a very lucrative career. That said, there’s more than one way to invest in Wall Street. While day traders depend on timely volatility to incur quick profits, long-term and income investors are more inclined to follow trends that can compound growth over time.

Regardless of their investment strategy, there’s one thing most investors have learned to covet: undervalued stocks. If for nothing else, undervalued stocks suggest they have room to grow. Equities that have demonstrated a unique propensity for upside are great additions to any portfolio, which begs the question: What are the best undervalued stocks to buy now?

Before we get to the best undervalued stocks to buy now, however, let’s first take a look at what an undervalued stock is.

What Is An Undervalued Stock?

The concept of an undervalued stock is more or less subjective. Two different investors with unique strategies can look at a single equity and come to two different conclusions based on its valuation. On the one hand, an undervalued stock may be an equity that has been sold off due to an overreaction from an earnings report. On the other hand, an undervalued stock could just as easily be an equity with plenty of unrealized potential. Either way, underlying fundamentals typically suggest undervalued stocks aren’t priced accurately. When all is said and done, an undervalued stock is simply an equity with room to grow.

What Is Value Investing?

In its simplest form, value investing is the practice of identifying and investing in under-appreciated equities. That’s not to say value investing accounts solely for long-term potential, but rather that the current valuation is attractive, relative to where the stock has already been. Value investors inherently seek out stocks and equities which may currently be acquired at a low cost; some people call it “buying on the dip.” Inversely, the same concept may be applied to “expensive” stocks: Value investors intentionally avoid building positions in “overvalued” stocks for fear of missing out on returns.

Best undervalued stocks to buy now

Value Vs. Value-Based Investing

Whereas value investing emphasizes undervalued stocks, the concept of value-based investing is centered on personal opinions. Value-based investing brings in a larger element of subjectivity than its value investing counterpart. Consequently, value-based investors have developed a reputation for blazing their own trail, regardless of what market indicators suggest. When exercising a value-based investing strategy, investors prioritize their own opinions on a stock over market fundamentals. As John Li, the co-founder of Fig Loans, is quick to point out, value-based investing is when investments “are made based on the popularity of the stock and the high expectations surrounding it.”

10 Undervalued Stocks To Look Out For In 2021

Investors looking to capitalize on value and increase their potential profit margins should pay special considerations to undervalued stocks. Few strategies are more capable of simultaneously mitigating risk and realizing attractive returns than value investing. Instead of spending valuable time looking at every business on Wall Street, consider the following list of undervalued stocks to look out for in 2021:

  1. ViacomCBS

  2. Apple

  3. Alibaba

  4. General Motors

  5. Qualcomm

  6. Simon Property Group

  7. Boeing

  8. Realty Income

  9. STORE Capital

  10. Okta


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ViacomCBS Inc. (NASDAQ: VIAC)

ViacomCBS is a well-known media and entertainment company; it’s primarily known for the CBS Television Network, but its portfolio is constantly expanding. Recently, however, Viacom got caught up in the poor Archegos Capital Management margin call. In the first part of this year, investment banks serving as Archegos’ broker made a mistake in asset allocation; instead of adding cash to individual accounts, the broker sold Archegos Capital Management’s large position in ViacomCMS. The large sale created an artificial dip in the company, and the stock dropped more than 60% from March’s high.

The selloff was a highly-publicized mistake, but damning for ViacomCBS’s stock price. However, it is worth pointing out that the selloff wasn’t due to any of the company’s fundamental indicators. The stock only dropped because of the mistake made by the broker. All of this happened at a time when Viacom looked poised to break out. In particular, Viacom is joining the streaming race with a new subscription product: Paramount+. The new streaming service is sure to benefit from the pandemic as people continue to remain at home. Estimates suggest Paramount+ will have 70 million streaming customers within three years, which would serve as a significant growth catalyst at its current valuation.

With a P/E ratio of 9.12x, Viacom is objectively inexpensive compared to its industry counterparts. As a whole, the media industry’s median P/E ratio sits somewhere in the neighborhood of 18.58x, which makes Viacom look like one of the better undervalued stocks for investors to look into.

Apple Inc. (NASDAQ: AAPL)

Apple needs no introduction, as most people who read this will probably be doing so from an iPhone or MacBook. In addition to their smartphones and personal computers, Apple designs, manufacture, and markets tablets, wearables, and accessories worldwide. Lately, Apple has been growing its presence in the software as a service (SAAS) space to increase recurring revenue streams. Apple’s products and services have elevated it to one of the world’s largest and most popular companies.

You would be hard-pressed to find anyone who has never heard of Apple, which would explain why shares of the company are hovering just below their 52-week high. At approximately $137.39, in fact, shares of Apple aren’t far from their all-time high. Nonetheless, many people view Apple as one of today’s most undervalued stocks, not because of where it has come from, but rather because of where it is going.

To be clear, Apple’s 37.26 price-to-earnings ratio constitutes an “expensive” stock. However, the company appears ready and willing to increase its valuation by breaking into the automotive industry. News of Apple’s latest electric vehicle aspirations may be just what the company needs to make today’s share price look undervalued. While it’s too soon to tell what the next step holds, it’s a safe bet shares of Apple will be higher in the future if they can manufacture a competitive electric vehicle.

Alibaba Group Holding Limited (NYSE: BABA)

Alibaba has become synonymous with “the Amazon of China.” The giant e-commerce company provides online and mobile commerce businesses, both domestically and internationally. Alibaba offers a wide variety of services: “Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others,” according to Yahoo Finance.

The company was founded in 1999 and was the beneficiary of decades of healthy growth. Most recently, Alibaba benefited from the pandemic, which shook the world and forced more people to stay home. Alibaba’s revenue shot up as more people turned to online platforms for all of their needs. Things were looking great over the course of 2020 until the company hit two major headwinds.

Ant Group, Alibaba’s financial arm, was prevented from going public by Chinese regulators. Shortly after regulators halted the IPO, Jack Ma (the co-founder and former executive chairman of Alibaba Group) was suspected missing. The simultaneous unfolding of these two events sent shares of Alibaba spiraling downward on the New York Stock Exchange in the fourth quarter of 2020.

Shares of Alibaba dropped 42.6% in a matter of months, from $317.14 in October to $222.36 before the end of the year. Since then, prices have rebounded but still represent a value play for long-term growth investors. In fact, the events at the end of 2020 appear to have been overblown and now look like they have created a great entry point for a dominant company. For starters, Mr. Ma has been found and is back to conducting business as usual.

Additionally, Alibaba’s biggest tailwind is still on the horizon. As a partial owner of Ant Group Co., Alibaba is looking to break into the financial technology (fintech) industry in a big way. Ant Group already owns Alipay, which currently represents one of China’s largest mobile payment applications. Moreover, it was recently announced the fintech giant might make its long-awaited initial public offering (IPO).

According to Barron’s, “Ant Group is becoming a financial holding company after an agreement with Chinese regulators that finally could clear a path to its initial public offering.”

If Ant Group goes public anytime soon, Alibaba will benefit greatly. The transition to digital payments will increase revenue exponentially and support growth for years to come. News of the agreement with regulators has already increased Alibaba’s share price, but it still represents a good value.

General Motors Company (NYSE: GM)

Despite being one of the world’s largest auto companies, General Motors trades at an attractive valuation. For example, General Motors has a market cap somewhere in the neighborhood of $77 billion with a revenue of $116 billion. Those numbers result from delivering more than five million vehicles to China and the United States in 2020. On the other hand, Tesla delivered 499,550 vehicles globally in 2020 and has a $783 billion market cap with a revenue of $28.2 billion.

Tesla trades at just under $900.00/share, while General Motors comes in at a much more modest $54.25/share. To be clear, it’s not fair to compare the two, but the argument can be made that General Motors is grossly undervalued.

Tesla’s valuation is based largely on Elon Musks’ vision and its market share of electric vehicles. However, General Motors poses a significant threat to Tesla’s future market share. While still trailing, General Motors has every intention of competing in the electric vehicle market. Over the span of five years, GM hopes to launch as many as 30 EV models, not the least of which include the GMC Hummer EV, a Bolt EUV, and the Cadillac LYRIQ. 

Whereas Tesla shares are priced for perfection, shares of GM have a nice runway ahead of them. Provided GM’s vision of EV manufacturing and autonomous strategies prove fruitful, today’s valuation could represent a significant discount for long-term investors.

QUALCOMM Incorporated (NASDAQ: QCOM)

Qualcomm has become synonymous with the world’s greatest digital wireless telecommunications products and services. Advancements in technology ushered in by Qualcomm have contributed more to mobile devices and other wireless products than just about any other company. Most recently, however, Qualcomm’s contributions are facilitating the transition to a fifth-generation mobile network, otherwise known as 5G.

Qualcomm has established itself as a premier 5G product and service provider. In doing so, shares of Qualcomm have increased 142.9% since they bottomed out due to the pandemic last year. Those unfamiliar with what has transpired in the last year may be quick to assume Qualcomm represents anything but a value at the moment. However, it is safe to say the 5G revolution is in its infancy, and Qualcomm is positioned to lead the industry in the transition. As a result, today’s price does represent a significant increase year-over-year, but underlying fundamentals suggest there’s plenty more room to run.

If Qualcomm can remain a major contributor to the 5G revolution, there’s no reason to think share prices are done growing. In fact, if 5G turns out to be the “game-changer” many are expecting, this could be just the beginning of a historic run.

Simon Property Group, Inc. (NYSE: SPG)

As a real estate investment trust, Simon Property Group owns and operates best-in-class shopping, dining, entertainment, and mixed-use real estate assets across North America, Europe, and Asia. More specifically, however, SimonProperty Group has become synonymous with the largest mall operates in the world. That said, this particular REIT was already under pressure before the pandemic when e-commerce started becoming more mainstream. The impact of COVID-19 only compounded the mall operator’s financial worries when quarantine orders and government-mandated lockdowns caused them to close their doors everywhere.

When the market crashed in March of last year, Simon Property Group dropped more than 124% over the course of February. To this day, Simon Property Group has returned to its pre-pandemic levels, but the REIT looks like a strong reopening play. In addition to increasing foot traffic on its properties, Simon Property Group made several smart decisions over the course of the last year. Namely, the mall operator turned a number of its vacancies into multifamily residences, hotels, healthcare facilities, offices, and self-storage facilities. Moves in the past year suggest SPG is primed for extended growth, and the stock’s price still appears to be undervalued.

At its current valuation, Simon Property Group’s P/E ratio of 34.81x looks more attractive than the industry standard. The industry as a whole currently boasts a P/E ratio of 46.86x, which makes SPG look like one of today’s best undervalued stocks.

The Boeing Company (NYSE: BA)

Boeing has simultaneously become one of the largest defense contractors and aerospace engineers in the world. In conjunction with its many subsidiaries, Boeing designs, develops, manufactures, sells, services, and maintains aircraft across several commercial and military sectors. The company is probably most known for its 737 Max (the fourth generation of Boeing 737), a common commercial jetliner used to transport people worldwide. Chances are: If you have flown on a plane, you have probably been on a 737 Max.

However, as a primary contributor to the travel industry, Boeing took a significant hit in 2020 when most flights were grounded thanks to the pandemic. In response to COVID-19, fewer companies ordered planes from Boeing, and maintenance was required less frequently. In a matter of weeks, Boeing took a significant step back. However, it is worth noting that Boeing was already under a lot of scrutiny for several failures exhibited by the 737 Max. All things considered, Boeing was one of the hardest-hit companies last year, and its stock price reflected as much.

Boeing’s stock price dropped more than fifty percent in the first quarter of 2020 and is still on the mend. However, with vaccines become more prominent and progress being made on the 737 Max every day, Boeing looks like a great “reopening” play in the stock market. Still down 26.4% from its 2020 high, Boeing is selling at a discount. More importantly, however, Boeing is set to be one of the primary beneficiaries of travel returning. As the light at the end of the pandemic grows, this company looks more and more like one of the best undervalued stocks in 2021.

Realty Income Corporation (NYSE: O)

Realty Income is an equity real estate investment trust (REIT) which has become synonymous with generating dependable cash flow for income investors. In doing so, the company owns and operates more than 6,500 real estate properties owned under long-term lease agreements. The cash flow generated from its high-quality tenants has served investors well for decades, and 2020 was no exception.

Not unlike every other REIT that relied on collecting rent in 2020, Realty Income was facing a significant threat due to the pandemic. National quarantine restrictions all but cut down foot traffic in retail stores, making it difficult for tenants to pay rent. Realty Income’s stock price dropped nearly sixty percent in just a couple of months because of fear and uncertainty. However, most of the REIT’s tenants were dubbed “essential businesses” and were allowed to stay open and continue paying rent. As a result, Realty Income’s stock price wasn’t necessarily creating a clear picture of its performance.

Realty Income did take a step back in 2020, but its stock price drop was an overreaction. In reality, the REIT performed well. The stock price has recovered a bit, but it has a ways to go till it gets back to last year’s highs. That, in conjunction with the reopening, suggests this stock is undervalued at the moment.

STORE Capital Corporation (NYSE: STOR)

STORE is a globally managed net-lease REIT. The company specializes in the acquisition, investment, and management of Single Tenant Operational Real Estate. STORE is one of the largest and fastest-growing net-lease REITs and is currently in possession of a large, well-diversified portfolio. With more than 2,500 properties, STORE was hit hard by COVID-19. However, last year’s tribulations look to have created a buying opportunity for this promising company.

It’s hard not to add at least a couple of REITs to the list of 2021’s most undervalued stocks. If for nothing else, last year was nothing short of disastrous for the retail industry and anyone renting commercial space. The pandemic made it extremely difficult for REITs to collect rent from tenants, and many stores were forced to close their doors for good. However, much like Realty Income, STORE weathered the storm and looks like it will come out on the other end even stronger.

Okta, Inc. (NASDAQ: OKTA)

The technology industry was the beneficiary of many work-from-home trends that took precedence in 2020. As more people transitioned from office life to home life, technology served as the workforce’s backbone. Without many of 2020’s best technology companies, in fact, the pandemic could have been much worse. As a result, many revolutionary stocks enjoyed a lucrative run to record highs last year, and Okta was no exception.

Okta made it possible for companies to allow their employees to work from home without the constant threat of cybersecurity attacks. The company became integral in letting employees work safely from home, and the stock’s price reflected as much. Share prices reached record highs as recently as February, but the reopening of the economy caused the market to transition out of tech and into value stocks. The move to reopening stocks crushed Okta’s share prices, and funds sold out of overvalued tech stocks for value stocks. However, it is important to note that the recent drop wasn’t due to performance but rather cyclical trends. Okta is still a great company, and it’s now trading at a discount.

Underpriced stocks

How To Find Undervalued Stocks

Finding undervalued stocks will mean something different to just about every investor. In fact, the definition of an undervalued stock is contingent on the respective investor’s investment style. Some investors, for example, search for undervalued stocks based on their current price relative to their intrinsic value. In other words, some view undervalued stocks as those with a lot of potential, or perhaps with the ability to disrupt entire industries. By that definition, finding undervalued stocks requires an inherent knowledge of each industry and how the stock in question can disrupt it.

The other way to find undervalued stocks is to use fundamental indicators to determine their “true” values. Depending on the company’s maturity, investors may use the price-to-sales ratio, price-to-earnings ratio, or several other metrics that gauge the company’s value. A good P/S ratio, for example, rests somewhere between one and two. Anything less than two is considered a good value. If using the P/E ratio, anything less than 16 is typically considered a value.

Summary

Undervalued stocks have proven they belong in a diversified portfolio. For that matter, few equities allow investors to tap into more potential than stocks with plenty of room for growth built-in. However, to invest in undervalued stocks, traders need to know which indicators to look into and which valuations actually represent a buying opportunity. Proper due diligence will reveal many undervalued stocks in today’s market, but for those of you with less time, the equities listed above should be a good place to start.


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FortuneBuilders is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”), or any state securities regulatory authority. The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only is not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned.

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