2022 got off to a weak start for the US stock market. All three major stock indexes are down year-to-date, and Nasdaq underperformed by 10%. Finding undervalued stocks in a broader stock market that is still hovering near all-time highs seems like a challenging task.
The world is waiting for news on whether or not Russia will invade Ukraine. If this occurs, a global sell-off in financial assets should ensue, albeit a short-term one. Still, it makes sense to invest in undervalued stocks right now, as investors have a margin of safety to use even if volatility could increase. Let’s not forget that highly-rated tech stocks have rewarded investors who ignored valuation in 2022 with hefty losses in contrast to a booming market in 2021.
Here are five stocks that are undervalued, have strong earnings growth rates, and relatively low P/E (price-to-earnings) and PEG (price-to-earnings-growth) ratios. The current S&P500 The P/E ratio is 25.5. All of these stocks have much lower P/E ratios and strong fundamentals overall:
- dow (NYSE:DOW)
- Great brothers (NYSE:TOL)
- synchronization finance (NYSE:SYF)
- Academy Sport and Outdoor (NASDAQ:ASO)
- Stellantis (NYSE:STLA)
The bottom line is that these five stocks are now relatively undervalued and have strong growth prospects. They could get even cheaper in a general market sell-off scenario due to rising interest rates and geopolitical concerns. From a long-term perspective, their current stock prices are very attractive.
Undervalued Stocks to Buy: Dow (DOW)
DOW stock is up 9% in 2022, defying the overall negative investment sentiment. Dow has an extensive portfolio of silicon-based products and solutions.
In 2021, revenue growth jumped 43% to $55 billion and net income jumped 415% to $6.3 billion. The forward dividend and yield of $2.80 and 4.6% are attractive.
Dow’s trailing twelve-month P/E (TTM) is 7.4 and its forward P/E is 9. With a PEG ratio of 0.30 and expected earnings per share (EPS) growth of 30%, there’s a lot to be said for a bullish DOW- Share.
The price-to-sales (P/E) ratio of 0.8 also suggests an undervalued stock, while the 41% return on equity is excellent.
Toll Brothers (TOL)
Shares in homebuilder Toll Brothers are down nearly 24% year-to-date. US housing market remains resilient: “The US NAHB housing market index fell 1 point to 83 in January 2022 from a 10-month high of 84 in December and slightly below market forecasts of 84.”
In 2021, Toll Brothers revenue increased 24% to $8.8 billion and net income increased 87% to $834 million.
Diluted earnings per share rose to $6.63, an increase of 95%. The TTM P/E is 8.2 and the forward P/E is 5.3. The stock has a PEG ratio of 0.45 and expected EPS growth of 26%. The P/S of 0.77 is very attractive.
Undervalued Stocks to Buy: Synchrony Financial (SYF)
Synchrony Financial offers consumer lending products such as credit cards, commercial lending products and consumer loans. Rising rates in 2022 set a positive narrative that has the potential to turn losses of nearly 3% year-to-date into gains.
A forward dividend and yield of 88 cents and 2%, respectively, doesn’t impress, but the dividend still contributes to total returns. This undervalued stock, equal to its intrinsic value, will deliver both capital gains and dividend income.
In 2021, sales fell 12.5% to $11.2 billion. On the plus side, net income rose 202% to $4.2 billion and diluted earnings per share rose 223% to $7.34.
The TTM P/E is 6 and the forward P/E is 8.1. The PEG ratio is 0.6 and the expected EPS growth is 23%. That’s not bad for a financial services company.
Academy Sport and Outdoor (ASO)
Academy Sports and Outdoors is a United States retailer of sporting goods and outdoor recreation products that sells a variety of products such as athletic equipment, backyard and outdoor gear, and health and fitness equipment.
ASO stock is down 18% year-to-date but is up 41% over the past year. Revenue for 2021 was up 18% to $5.7 billion, net income was up 157% to $308.8 million, and diluted earnings per share were up 155% to $3.39.
The TTM P/E is 5.3 and the forward P/E is 5.9. The PEG ratio is 0.42 and the expected EPS growth is 15%.
A price-to-earnings multiple of 0.5 and enterprise value-to-sales ratio of 0.69 confirm that ASO stock is relatively undervalued and a value stock among specialty retailers.
Undervalued Stocks to Buy: Stellantis (STLA)
It’s been a little over a year since Fiat Chrysler and the PSA Group merged to form Stellantis. The company is the top-selling car manufacturer and operates a large number of internationally renowned brands.
Many investors have focused on EV makers in 2021 for their growth and profits while ignoring the big picture in the auto industry. Most of these hot EV stocks are down big year-to-date. But STLA stock is little changed in 2022, up nearly 4% year-to-date.
Stellantis offers the opportunity to gain exposure to internal combustion engine cars, which still dominate the automotive industry worldwide, while participating in the future of electrification for mobility. Economies of scale should have a lasting positive effect on profitability.
The price-to-earnings ratio of 0.27 is attractive, although the net margin of 0.03% isn’t that high. Still, a very small positive net margin is better than a negative one. The TTM P/E is 4.6 and the forward P/E is 4.2. The PEG ratio is 0.12 and the expected EPS growth is an impressive 38%.
At the time of publication, Stavros Georgiadis, CFA had no position (either directly or indirectly) in any of the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publicity guidelines.
Stavros Georgiadis is a CFA charterholder, equity research analyst and economist. He focuses on US stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be reached on Twitter and beyond LinkedIn.