Investing in underrated stocks can offer a higher margin of safety. These stocks can weather economic uncertainty and stock market volatility better than many corporations.
While the current valuation is useful for determining if a stock is undervalued, it doesn’t tell the entire story. Also, bargain stocks offer compelling growth opportunities relative to their valuations. A low P/E ratio doesn’t matter if the corporation is losing market share and generating substantial losses.
Therefore, investors looking for bargain stocks may want to consider these promising picks. They offer reasonable valuations and growth opportunities.
American Express (AXP)
Founded in 1850, American Express (NYSE:AXP) has delivered many years of double-digit revenue and net income growth rate. The company plans to hit both of those benchmarks beyond 2026 and maintain them in Q4 2023. During that quarter, American Express reported 11% year-over-year (YOY) revenue growth and 23% YOY net income growth.
Further, the financial firm has a 19.5 P/E ratio, outperforming the stock market with a 16% year-to-date (YTD) gain. Also, the company has a 1.28% dividend yield and an impressive compounded annual growth rate of 10.43% over the past decade.
Moreover, American Express stands to benefit as more people use credit and debit cards to make purchases. These cards are more convenient than paper currency and offer enticing rewards. Cardholders can receive cash back, points and the opportunity to improve their credit scores if they make purchases with credit cards. Thus, American Express is a leading company in the industry that trades at a reasonable valuation.
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is the most undervalued Magnificent Seven stock with a 29 P/E ratio. The company had a slow start thanks to some artificial intelligence (AI) miscues before rallying by 20% since the first week of March. Shares are up by 14% YTD, gaining 158% over the past five years.
Frankly, investors are getting excited about the company’s recent AI chip announcement. But Alphabet has more going for it than AI. Advertising and cloud computing revenue continue to grow along with profit margins. Alphabet reported 13% YOY revenue growth in Q4 2023. Advertising led the way, but cloud computing is growing at a faster rate.
For instance, Alphabet is expanding its market share in the cloud computing industry which has resulted in higher profit margins. The company increased its net income by 52% YOY and secured a 24% net profit margin for the quarter. Currently, the stock is rated as a strong buy with a projected 5% upside from its current price.
UPS (UPS)
UPS (NYSE:UPS) hasn’t had the best stretch. Shares are down by 24% over the past year and have dropped by 8% YTD. The stock’s recent misfortune has resulted in an 18.5 P/E ratio and a 4.50% dividend yield. Investors can realize plenty of cash flow at current levels.
Impressively, UPS has been around for more than 100 years and owns an essential place in the supply chain. The CEO acknowledged the company’s hardships in the Q4 2023 earnings report. The company’s 2024 guidance indicates that it is turning a new leaf and fighting the headwinds.
Furthermore, the logistics giant is projecting revenue to range from $92.0 billion to $94.5 billion. That range is a slight increase from the company’s $91.0 billion in full-year 2023 revenue. Although the increase is small, UPS doesn’t have to generate groundbreaking financial growth at its current valuation. Also, UPS expects the consolidated adjusted operating margin to range from 10.0% to 10.6%.
On this date of publication, Marc Guberti held a long position in GOOG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.