7 Undervalued Stocks in an Overvalued Market

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In June 2021 the investment firm, Bespoke Investments made this ominous pronouncement: “Investors simultaneously think the market is overvalued, but likely to keep climbing.”

This statement was meant to be a warning to investors. However, investors have shown that they can be very resilient even as the major indices continue to reach new highs.

So it would seem strange to be looking at a list of undervalued stocks. But looking at undervalued stocks is a form of value investing. And in 2021, investors are shifting between growth and value investing on a monthly, if not weekly basis.

An undervalued stock is one that is considered to be trading below its fair value. However, there’s no singular right way to identify undervalued stocks. Some investors prefer to look at fundamental metrics. Others will look for technical signals.

The one common element of all undervalued stocks is that they are stocks that have room to grow. That’s something that all investors can get behind. And in this special presentation, we’ll take a look at seven stocks that are showing signs of being undervalued at this time.

#1 - Quest Diagnostics (NYSE:DGX)

The first stock on this list is Quest Diagnostics (NYSE: DGX) which is up 10.88% in 2021. One way to look at undervalued stocks is to compare their price-to-earnings (P/E) ratio to others in its sector. Currently, Quest Diagnostics has a P/E of 10.18 which is significantly lower than the average P/E ratio of 22.9 for the entire Healthcare sector.

Quest was a pandemic winner because it could provide Covid-19 testing. However, that is far from the company’s sole source of revenue. Quest is also involved in providing diagnostic testing that is used to determine custom therapies. This is a growing field that is likely to have a resurgence as doctor-patient interactions return to something more normal.

That’s because Quest is well seeded as a partner with hospitals and health care networks. And its range is expanding. In 2020, Quest acquired Mid America Clinical Laboratories, one of its largest acquisitions ever. This also expanded the company’s service coverage into another state.

About Quest Diagnostics

Quest Diagnostics Incorporated provides diagnostic testing and services in the United States and internationally. The company develops and delivers diagnostic information services, such as routine, non-routine and advanced clinical testing, anatomic pathology testing, and other diagnostic information services. Read More

Current Price: $127.33
Consensus Rating: Hold
Ratings Breakdown: 2 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $144.18 (13.2% Upside)

#2 - ViacomCBS (NASDAQ:VIAC)

ViacomCBS (NASDAQ:VIAC) may best be remembered for getting caught up in the Archegos Capital Management margin call. Shares of VIAC stock plunged more than 60% from the March high. But this is an example of a good stock that has been unfairly oversold. It appears that the decline in revenue from its legacy broadcast/cable TV services is priced into the stock. This leaves investors free to focus on three significant catalysts for the stock.

First, VIAC stock has a P/E ratio of 9.97 which makes it objectively undervalued compared to its sector which has a median P/E or around 19.8. And analysts project the stock could have an upside of around 14%.

Second, the company has entered the streaming wars with two services. Paramount+ is the company’s subscription service. Analysts are estimating the company may have up 70 million customers within three years. And the company also offers PlutoTV which is an ad-supported platform.

Third, as consolidation becomes the new watch word for this sector, ViacomCBS could be setting up as an attractive takeover target.

About

Current Price: 0.00
Consensus Rating: N/A
Ratings Breakdown: 0 Buy Ratings, 0 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: N/A

#3 - Appian Corporation (NASDAQ:APPN)

If you like to look for undervalued stocks in the tech sector, consider Appian Corporation (NASDAQ:APPN). Appian enables its client companies to automate coding across applications and websites. This need for low-code automation is seeing exponential growth

This makes APPN stock a good choice for investors who like to skate to where the puck is heading. In fact, company management is guiding for revenue growth of 39% to 40%. That would be the fastest growth in the company’s history.

APPN stock has been caught up in a couple of short squeeze events, and short interest on the stock is around 17%. Still, there isn’t much evidence that the company is directly in the sights of the Wallstreetbets band of investors.

Appian is not yet profitable, but a look at the company’s price-to-sales ratio suggests the stock is expensive. Still, if the company hits its growth projections it will play nicely with a three-year cloud subscription renewal rate of 98%.

About Appian

Appian Corporation, a software company that provides low-code design platform in the United States, Mexico, Portugal, and internationally. The company's platform offers artificial intelligence, process automation, data fabric, and process mining. It provides The Appian Platform, an integrated automation platform that enables organizations to design, automate, and optimize mission-critical business processes. Read More

Current Price: $34.88
Consensus Rating: Moderate Buy
Ratings Breakdown: 5 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $48.86 (40.1% Upside)

#4 - Okta (NASDAQ:OKTA)

Sticking in the tech sector, the next undervalued stock we’re recommending is Okta (NASDAQ: OKTA). The company is carving out a distinct niche in the growing cybersecurity sector. Specifically, Okta provides an identity management platform for enterprises as well as small- and medium-sized businesses, universities, non-profits, and government agencies.

While many market trends come and go quickly, the move towards cybersecurity will be one that will have staying power for at least the next several years. Experts have predicted that the number of cyberattacks increased by 300% in the last year.

The company was a pandemic winner as the transition to remote work became a necessity. Okta’s products allowed employees to work safely from home. From the onset of the pandemic until the end of 2020, OKTA stock soared approximately 137%.

But the stock has dropped in value as investors continue to shift out of tech stocks. There was certainly nothing in the company’s most recent earnings report that suggests the company’s performance is going to drop off.

About Okta

Okta, Inc operates as an identity partner in the United States and internationally. The company offers Okta's suite of products and services used to manage and secure identities, such as Single Sign-On that enables users to access applications in the cloud or on-premises from various devices; Adaptive Multi-Factor Authentication provides a layer of security for cloud, mobile, web applications, and data; API Access Management enables organizations to secure APIs; Access Gateway enables organizations to extend Workforce Identity Cloud; and Okta Device Access enables end users to securely log in to devices with Okta credentials. Read More

Current Price: $92.76
Consensus Rating: Hold
Ratings Breakdown: 10 Buy Ratings, 20 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $100.39 (8.2% Upside)

#5 - Advanced Micro Devices (NASDAQ:AMD)

Last year, shares of Advanced Micro Devices (NASDAQ: AMD) soared over 68%. However, in 2021, it’s been a different story. AMD stock is down 2%, but a recent rally is suggesting that it may be time to jump on the stock.

The semiconductor sector is notoriously cyclical, but it is in what appears to be a lengthy bull cycle. And AMD is well positioned in this sector with its focus on manufacturing embedded and semi-custom semiconductors for computing and graphics applications.

The company is not immune from disruptions due to the global chip shortage. The company was already operating at full capacity prior to the pandemic. Simply put, the company can’t keep up with current demand. However, few companies offer the quality of semiconductors at the scale of Advanced Micro Devices. And that means that they’ll be willing to wait.

That also means that patient investors can buy AMD shares at a discount today and watch as they grow in value.

About Advanced Micro Devices

Advanced Micro Devices, Inc operates as a semiconductor company worldwide. It operates through Data Center, Client, Gaming, and Embedded segments. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing unit, chipsets, data center, and professional GPUs; and embedded processors, and semi-custom system-on-chip (SoC) products, microprocessor and SoC development services and technology, data processing unites, field programmable gate arrays (FPGA), and adaptive SoC products. Read More

Current Price: $150.76
Consensus Rating: Moderate Buy
Ratings Breakdown: 27 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $185.59 (23.1% Upside)

#6 - Boeing (NYSE:BA)

In early 2019, the thought of Boeing (NYSE:BA) making a list of undervalued stocks would have been laughable. At that time BA stock was trading at $440.52. Then the company went through not one, but two, tragic airplane crashes in which the company’s software for its 737 MAX was being cited for several failures.

Then, just as the company was recovering from that, the Covid-19 pandemic grounded airlines. New orders were put off and there was less maintenance required for existing fleets. At one point in March 2021, you could buy shares of Boeing stock for under $100. If you did, you are relishing your good fortune.

But if you didn’t BA stock still looks like an undervalued play as the airline industry continues to recover. Analysts are becoming increasingly bullish on the company. The company’s fortunes will largely depend on having no more hiccups in 2021, but if the skies remain open for business, investors should be rewarded for their investment.

About Boeing

The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems, and services worldwide. The company operates through Commercial Airplanes; Defense, Space & Security; and Global Services segments. Read More

Current Price: $171.35
Consensus Rating: Moderate Buy
Ratings Breakdown: 13 Buy Ratings, 7 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $229.35 (33.9% Upside)

#7 - Snap-On (NYSE:SNA)

If you’re a fan of traditional value stocks, then we’ve saved the best for last. Snap-On (NYSE: SNA) is an example of a stock that might not have the sizzle of other stocks, but it simply gets the job done for dividend investors.

The industrial product manufacturer has exposure to some of the hottest sectors including home repair, housing, OEM and aftermarket auto, and the tech sector. That’s a key reason why the stock has charged ahead over 68% in the last 12 months.

However, be advised that a broader look at the SNA stock chart shows that such growth is clearly the exception and not the norm. With that in mind, easy gains may be gone. But the company has a rock-solid balance sheet and a commitment to shareholder value.

The company has increased its dividend in each of the last 11 consecutive years and it has a three-year average dividend growth of over 58%. This is a buy-

About Snap-on

Snap-on Incorporated manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial & Industrial Group, Snap-on Tools Group, Repair Systems & Information Group, and Financial Services segments. Read More

Current Price: $266.70
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $301.40 (13.0% Upside)

The reopening-fueled rally that is taking place in the United States is certainly putting the strategy of looking for undervalued stocks to the test. However, even if you’re still bullish on the overall market, proper diversification suggests you should set aside a bit of your portfolio for value stocks.

In some cases, an undervalued stock pays out a nice dividend. In bull markets, the benefits of dividends can become unfashionable. But when markets are volatile, a dividend can boost a stocks total return which can allow many value stocks to more closely approximate growth stocks.

For investors that want the benefit of value stocks without selecting their own stocks, a value-focused exchange-traded fund (ETF) can be a compelling alternative. One of the best in 2021 is the Invesco S&P SmallCap 600 Pure Value ETF (NYSEARCA:RZV). The fund has delivered a 12-month return of over 117% and pays an annual dividend yield of 0.47%.