Right now, I think one of the best moves for investors is to look into undervalued stocks. That’s because there are several positive factors that continue to take the markets higher. Today, the global economy is on a gradual path to recovery. Furthermore, the worst of the Covid-19 pandemic might just be over. At the same time, the Federal Reserve has continued to pursue expansionary policies. It’s very likely that interest rates will increase in baby steps in 2023 and beyond.
However, even with these positives, it’s important to remain cautious — in particular, at a time when the S&P 500 is trading at a price-earnings (P/E) ratio of 45.93. Dr. Mark Lee Levine of the University of Denver wrote in an email to InvestorPlace:
“[…] If heavy inflation is present, we will see a greater price increase in hard assets, such as real estate and a reduction in the purchasing power of the current dollar currency. That is, the value of the dollar will drop.”
In my view, it makes sense to go overweight on defensive stocks and undervalued stocks. As such, this column will discuss seven bargain picks that seem to have minimal downside risk from current levels. However, their upside potential is still significant as markets start looking for value.
So, let’s take a deeper look into these undervalued stocks.
- Altria (NYSE:MO)
- Pfizer (NYSE:PFE)
- Costamare (NYSE:CMRE)
- Alibaba (NYSE:BABA)
- Vale (NYSE:VALE)
- Kinross Gold (NYSE:KGC)
7 Undervalued Stocks to Buy: Altria (MO)
MO stock has been an under-performer in the last 12 months. At a forward P/E of 10.29, the stock is a screaming buy. Additionally, the stock offers an annualized dividend of $3.44. This translates into an attractive dividend yield of 7.29%. So, even if MO stock is sideways, it’s worth considering for steady cash flows.
Altria is in a business transformation phase, with cigarette sales volume on a gradual decline. The company has been focusing on expanding its non-combustible portfolio. However, its cigarette segment is still the cash flow driver. For 2020, the company reported operating cash flow of $8.4 billion.
Strong cash flows will ensure that its investment in business transformation continues. At the same time, Altria is positioned to pay dividends and deleverage. Further, the net-debt-to-consolidated-EBITDA ratio of 2.2 does not seem to be a concern.
In terms of progress in the non-combustible segment, the company’s On! product is already available in 93,000 retail stores. The company has also expanded its Marlboro HeatSticks and IQOS devices in several states. Over the next five years, the non-combustible segment is likely to have a meaningful impact on cash flows.
Finally, this pick of the undervalued stocks also has exposure to the cannabis segment through its investment in Cronos (NASDAQ:CRON). So, the growing possibility of federal-level legalization in the United States is another catalyst for…