2022 has started on a low note for the US stock market. All three major equity indices have posted losses since the start of the year, and Nasdaq underperformed by 10%. Finding undervalued stocks in a broader stock market that is still near all-time highs seems like a difficult task.
The world is waiting for news on whether or not Russia will invade Ukraine. If that happens, a global sale of financial assets should follow, even if it is short-term. Nonetheless, investing in undervalued stocks makes sense right now because investors will have a margin of safety to use even if volatility may increase. Let’s not forget that high-valued tech stocks rewarded investors who ignored valuation in 2022 with heavy 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/earnings) and PEG (price/earnings/growth) ratios. the running S&P500 The P/E ratio is 25.5. All of these stocks have a much lower P/E ratio and, overall, they have strong fundamentals:
- Dow (NYSE:DOW)
- Toll Brothers (NYSE:TOL)
- Synchrony Financial (NYSE:SYF)
- Sports and outdoor academy (NASDAQ:ASO)
- Stellantide (NYSE:STLA)
Ultimately, these five stocks are now relatively undervalued and have strong growth prospects. They could become 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 broader negative investment sentiment. Dow has an extensive portfolio of silicon-based products and solutions.
In 2021, sales growth jumped 43% to $55 billion and net profit soared 415% to $6.3 billion. The forward dividend and yield of $2.80 and 4.6% respectively are attractive.
Dow’s trailing twelve month (TTM) P/E is 7.4, and its forward P/E is 9. With a PEG ratio of 0.30 and expected earnings per share (EPS) growth 30%, there is a strong bullish argument for DOW stock.
The price-to-sales (P/S) ratio of 0.8 is also indicative of an undervalued stock while the return on equity of 41% is excellent.
Toll Brothers (TOL)
Shares of homebuilder Toll Brothers are down nearly 24% year-to-date. The US real estate market remains robust: “The NAHB US housing market index fell 1 point to 83 in January 2022, from a 10-month high of 84 in December, and slightly below market forecast of 84.”
In 2021, Toll Brothers revenue increased by 24% to $8.8 billion and net income increased 87% to $834 million.
Diluted EPS increased 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 a expected EPS growth by 26%. The P/S of 0.77 is very attractive.
Undervalued Stock to Buy: Synchrony Financial (SYF)
Synchrony Financial provides credit products such as credit cards, commercial credit products and consumer installment loans. Rising interest rates in 2022 creates a positive narrative that has the potential to turn year-to-date losses of nearly 3% into gains.
A forward dividend and yield of 88 cents and 2% respectively are unimpressive, but the dividend still adds to the total return on the holding. This undervalued stock converging on its intrinsic value will provide both capital appreciation and dividend income.
In 2021, revenue fell 12.5% to $11.2 billion. On the positive side, net income increased 202% to $4.2 billionand diluted EPS increased 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 at all for a financial services company.
Sports and Outdoors Academy (ASO)
Academy Sports and Outdoors is a sporting goods and outdoor recreation product retailer in the United States that sells a variety of products such as sports equipment, garden and outdoor equipment, and tools of health and fitness.
ASO stock is down 18% year-to-date, but up 41% over the past year. 2021 revenue increased by 18% at $5.7 billion, net income climbed 157% to $308.8 million and diluted EPS increased 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%.
P/S of 0.5 and company V/E ratio of 0.69 confirm that ASO stock is relatively undervalued and a value stock pick among specialty retail companies .
Undervalued Stock to Buy: Stellantis (STLA)
It’s been a little over a year since Fiat Chrysler and the PSA group merged to become Stellantis. The company is the No. 3 automaker by revenue and operates a host of internationally renowned brands.
Many investors have focused on electric vehicle manufacturers in 2021 for growth and gains while ignoring the big picture of the automotive industry. Most of these hot EV stocks have seen big losses since the start of the year. But STLA’s stock is almost flat in 2022 with a gain of almost 4% since the start of the year.
Stellantis presents an opportunity for exposure to the internal combustion engine cars that still dominate the automotive industry worldwide while participating in the future of electrification for mobility. Economies of scale should have a lasting positive impact on profitability.
The P/S of 0.27 is attractive, although the net margin of 0.03% is not so. However, a very small positive net margin is better than a negative margin. 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%.
As of the date of publication, Stavros Georgiadis, CFA does not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.
Stavros Georgiadis is a CFA charter holder, equity research analyst and economist. He focuses on US stocks and has his own stock market blog. thestockmarketontheinternet.com/. He has written various articles for other publications in the past and can be reached on Twitter and on LinkedIn.