Finding undervalued stocks to buy isn’t as easy as it once was.
When Benjamin Graham wrote The Intelligent Investor, finding undervalued stocks involved diving into financial statements, calculating ratios independently, and finding a gap between a company’s intrinsic value and the stock priced by the market. But, financial ratios are at our fingertips today. Virtually no information escapes real-time pricing updates (especially with systematic and algorithmic trading systems).
This makes undervalued stocks a tricky subject to navigate. Pinning down the best undervalued stocks to buy is more than finding those with a price-to-book value below one. And, it’s more than picking shares that trade below average price-to-earnings (P/E) ratios. While these can and should be part of your equation, relying on them alone isn’t sufficient.
Instead, you’ll need to evaluate the position of a stock today compared to the place it will be tomorrow. This differs from growth investing because you’re typically targeting mature companies with a proven product or service that trades low relative to where you see market forces blowing it in coming months or years.
I think that, considering the holiday season and surprisingly strong preliminary consumer shopping stats, these undervalued stocks aren’t properly priced by market participants relative to their short-term strength and long-term prospects.
I’ve been a fan of SharkNinja (NYSE:SN) since it hit the stock exchange this summer. This weekend cemented its position at the top of my list of undervalued stocks to buy. While far from scientific, my own family’s Black Friday shopping experience was dominated by SharkNinja products at Target (NYSE:TGT) and other big-box retail outlets. What’s more, a quick glance around others’ carts saw tons of SharkNinja products, from vacuum cleaners to ice cream machines. Again – far from scientific, but the brand’s omnipresence could bode well for its holiday sales prospects.
The company’s longstanding sales strength reinforces that sentiment. Since 2008, the appliance company’s sales increased 20% annually. In the company’s most recent filing, management already noted a 15% year over year (YOY) sales bump, well before holiday shopping even started.
With shares trading as much as 40% below analyst expectations, SharkNinja tops my list of undervalued stocks to buy.
Electronic Arts (EA)
Electronic Arts (NASDAQ:EA) is seeing strong sales this year as more Americans trim outside entertainment for the stay-at-home variety. Net bookings, a stat unique to online gaming companies, measure digital and physical sales by adding net revenue to the change in deferred net revenue for online games. In the most recent quarter, EA posted a 6% YOY net bookings growth.
At the same time, the company posted a 33% YOY net income growth despite a much smaller uptick in revenue. This shows that the company can more efficiently cut costs by focusing on core operational principles while maximizing online gaming’s popularity.
Management keeps its expectations low, saying they expect to close the year with roughly flat to up 5% YOY. That may seem a grim outlook. But considering recent performance and upcoming holiday sales, interpreting the statement with cautious optimism is warranted.
PayPal (NASDAQ:PYPL) has a massive moat and remains nearly untouchable. That places it among undervalued stocks, considering shares fell 25% since January. The company holds more than 40% of the global online payment processing market. That’s double the closest competitor, Stripe, which holds just 21% of the market.
Online sale projections indicate that total revenue will climb 65% between now and 2028. In the short term, analysts expect holiday shopping sales to heavily favor online sales (9% growth projections) rather than in-store sales (less than 1% YOY growth). Whether the specific stats bear out remains to be seen. Still, no one denies that digital shopping is at the forefront of consumer shopping. PayPal stands to cement its dominant position as that trend accelerates.
PayPal is currently onboarding a slew of new executives and managers in roles that include talent development and even real estate strategies. The company is also realigning efforts along the three lines of consumers, small businesses, and enterprise clients. Each addresses the customer and client segments’ needs better. PayPal is clearly focusing on optimizing operations to match pace with online shopping trends. Today’s streamlining will pay dividends down the road.
Roblox (NYSE:RBLX) is a surprising pick for a list of undervalued stocks to buy. The company’s financials fly in the face of any reasonable value investment analysis, as they’ve never been profitable despite a rapidly growing user base. But, considering recent developments and imminently strong holiday sales, I think this stock is a solid buy today (if you have the patience).
Roblox has been rapidly cutting costs, reducing its net loss by nearly 10% in the most recent quarter compared to last year. And, remember the net bookings we covered above? Roblox’s bookings hit $839.5 million last quarter, nearly 20% higher than last year. At the same time, daily active users climbed by 20%, each contributing an average of $11.96 to net bookings. These strong stats bode well for Roblox, considering its immense popularity within the youth demographic, especially as parents start spending towards digital gifts this season.
Hasbro (NASDAQ:HAS) is in the middle of streamlining its operations. While that creates short-term volatility, it makes today’s shares undervalued in light of future financial prospects. The company is in the middle of divesting its film and television business to focus on what made it great: toys.
While the move benefits Hasbro by slicing off an expensive arm of the company’s operations that only contributed 14% to net revenue, there’s more benefit under the hood. The company sold the operational wings for more than $500 million. It plans to use $400 million to retire debt before 2024. Hasbro’s debt-to-equity ratio has consistently floated above 2 for the past five quarters, presenting credit risk as rates rise. Selling its losing entertainment division will improve the company’s position as it pays down debt and cuts costs associated with pricy production.
Hasbro shares are down 25% since January. Investors who want to capture holiday sales strength alongside potential capital improvements should jump in now.
Nintendo (NTDOY, NTDOF)
Nintendo (OTCMKTS:NTDOY, OTCMKTS:NTDOF) is ready to have a great holiday sales season. The company slashed prices for its popular Switch series and compatible games. In a competitive market where consumers are increasingly price-sensitive, the move will go a long way toward helping Nintendo maintain its strength within the gaming platform industry.
But, Nintendo’s long-term prospects make it undervalued today. This year saw a slate of Nintendo news that could make this stock go stratospheric in the coming months. The company’s newest movie, the Super Marios Bros. Movie, generated more than $1.36 billion globally this year.
That underscores an important point. Nintendo’s franchising opportunities are huge and largely untapped. Moviemakers, moving on from superhero licensing, could easily pivot to leveraging Nintendo’s intellectual property portfolio and generate tons of money for the gaming company.
At the same time, ongoing rumors of a Nintendo/Google (NASDAQ:GOOG, NASDAQ:GOOGL) could make this the ultimate stock to buy in 2024. If the supposed collaboration produces the much-anticipated virtual reality platform many expect, Nintendo could quickly become a leader among metaverse stocks.
It wouldn’t be holiday shopping if we didn’t include our furry friends. Chewy (NYSE:CHWY) is among the undervalued stocks ready to benefit from pet-friendly consumer sentiment.
Critically, the company is positioned at the top of subscription-based pet services. And, 75% of its sales come from recurring subscriptions. Recurring revenue of that magnitude is a goldmine for companies like Chewy, as it’s usually reliably forecasted for long periods and helps create financial stability and predictability for e-Commerce companies.
At the same time, Chewy is spreading its wings to create long-term value beyond its basic offerings. The company is developing an international expansion strategy, which will serve to expand its total addressable market massively. It’s also focusing on its healthcare categories, which helps offset subdued consumer spending for discretionary products like toys and treats.
Chewy shares are down 50% since January, making this undervalued stock one to add to your list during holiday stock shopping.
On the date of publication, Jeremy Flint held a long position in SN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.