Albemarle Corp. (NYSE: ALB), Ionis Pharmaceuticals Inc. (NASDAQ: IONS), Insulet Corp. (NASDAQ: PODD), Hess Corp. (NYSE: HES) and Wynn Resorts Ltd. (NASDAQ: WYNN) are among undervalued stocks that beat analysts earnings views.
Undervalued stocks are trading below their intrinsic value, based on underlying fundamentals such as earnings, asset value, growth prospects and cash flow.
A stock is considered undervalued when its market price falls below its intrinsic value.
That presents an opportunity for investors to buy at a discount, but value stocks haven’t exactly been in favor recently, as growth stocks like Nvidia Corp. (NASDAQ: NVDA), Advanced Micro Devices Inc. (NASDAQ: AMD) and Meta Platforms Inc. (NASDAQ: META) have been the clear market leaders.
Why Consider Undervalued Stocks?
The reason to own undervalued stocks comes back to the oldest investing premise: Buy low and sell high.
Undervaluation can occur for several reasons, including market overreaction to a poor report or unusual event, a company’s temporary setbacks or assets that the market is mispricing.
By identifying fundamentally sound companies trading at a discount, investors can capitalize on market inefficiencies.
Is There Still a Value Premium?
The concept known as the value premium refers to situations where stocks with lower valuation metrics, such as low price-to-earnings or price-to-book ratios, have outperformed stocks with higher valuations over the long haul.
Clearly, that hasn’t been the situation in the past 15 years, as growth stocks have rolled over value.
The value premium may not be applicable across large asset classes, at least for the moment. However, it’s certainly possible to sift through the market and identify individual undervalued stocks that appear to have the fundamental strength, competitive positioning and potential catalysts to move higher.
Albemarle Earnings Expected to Turn Around
The world’s largest producer of lithium has seen earnings decline for the past two quarters, and revenue decline in the most recent quarter. Wall Street expects a 79% earnings decline this year, to $4.69 a share.
Lower demand for electric vehicles is a culprit, along with share price dilution as the company raised capital through convertible shares, which, when converted to common stock, would dilute shareholders’ positions.
Where’s the value here? Analysts see the stock stabilizing as earnings growth returns in 2025. In addition, there’s a carrot for income investors, in the form of the Albemarle dividend yield of 1.30%. That’s unlikely to be reduced, as the company has a 29-year history of boosting the shareholder payout.
Waiting for Revenue from Ionis Pipeline
Ionis is a leader in the business of RNA-based therapies to treat diseases by targeting specific genetic mechanisms. It has a blockbuster product with spinal muscular atrophy treatment Spinraza, marketed by licensing partner Biogen Inc. (NASDAQ: BIIB).
The Ionis Pharmaceuticals chart shows the stock down 11.70% this year as investors wait for drugs in the company’s pipeline to result in revenue. As with other pharmaceutical stocks and biotech stocks, Ionis stock can be whipsawed, depending on clinical trial results.
Wall Street sees the stock’s fortunes turning higher; MarketBeat’s Ionis Pharmaceuticals analyst forecasts show a consensus view of “moderate-buy” with a price target of $53.77, an upside of 20.37%.
Diabetes Drugs Clobbered Insulet
Insulet develops and manufactures tubeless insulin delivery systems for people with diabetes. Before the rise of diabetes medications from companies like Eli Lilly & Co. (NYSE: LLY) and Novo Nordisk A/S (NYSE: NVO), Insulet’s earnings were growing at triple-digit rates.
Earnings growth is expected to be just 9% this year, rising to 30% in 2025.
Sellers may have panicked about the company’s future prospects. Morningstar analyst Debbie Wang, in a February 26 note, said Insulet’s Omnipod system “is inconspicuous and easy to use and has so far been very successful among patients new to insulin pumps. These patients represent much growth potential, as an estimated 60% of Americans with Type 1 diabetes still rely on daily insulin injections.”
She also said Insulet may be an acquisition target for larger medical device makers such as Medtronic PLC (NYSE: MDT) or Abbott Laboratories (NYSE: ABT).
Time to Nab Hess Shares Before It’s Acquired?
In 2023, Chevron Corp. (NYSE: CVS) said it would acquire Hess in a deal valued at $60 billion, although Exxon Mobile Corp. (NYSE: XOM) and China’s Cnooc are asserting that they have pre-emptive rights to acquire Hess.
Plenty is going on behind the scenes right now, while Hess shares continue consolidating in an orderly fashion below a potential buy point near $168.
MarketBeat’s Hess earnings data show the company handily beating sales and earnings views, although both earnings and revenue growth have been slowing. That’s not a company-specific development at Hess; the energy sector as a whole has shown slower earnings growth in the past year.
Analysts expect an acquisition is likely, meaning investors may still be able to get a premium from Hess shares.
Wynn Stock: Earnings Growth Signals a Win is Near?
The Wynn Resorts chart shows a stock that’s forming a cup-with-handle base below a $108.76 buy point.
The casino and resort operator topped net income and revenue views in each of the past four quarters, as you can see using MarketBeat’s Wynn Resorts earnings data.
The undervaluation of Wynn is pretty clear: Covid lockdowns in the U.S., but especially in China, decimated revenue, which actually began slowing in 2019.
That situation is finally reversing, with analysts expecting triple-digit earnings growth in the past quarter, the first time since 2018 that earnings are increasing.
China is forecast to be the growth driver. According to CFRA analyst Zachary Warring, “We expect Macau to continue to grow into 2024 as WYNN’s U.S. properties experience little to no growth.”