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Unveiling Hidden Treasure: 3 Undervalued Stocks Worth Your Long-Term Investment

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Unveiling Hidden Treasure: 3 Undervalued Stocks Worth Your Long-Term Investment

Delve beyond the superficial allure of trending stocks to uncover true value hidden within underappreciated gems in the market. Discover the potential of these under-the-radar stocks for a solid buy-and-hold strategy, supported by a meticulous blend of cash flow analysis and earnings evaluation.

Ulta Beauty (ULTA)

ULTA stock Ulta Beauty store front sign located at Laurel Town Centre in Laurel, Maryland.

Source: Ryan P Stephans / Shutterstock.com

Ulta Beauty (NASDAQ:ULTA) emerges as a prime candidate among under-the-radar stocks. The reigning beauty behemoth in the U.S., Ulta encompasses a one-stop-shop for cosmetics, skincare, and salon services. Despite its industry dominance and robust financial performance, Ulta remains a hidden gem among stock options for long-term investment.

Valuation models based on discounted cash flow project Ulta’s fair value at $663.13 per share, indicating a remarkable 21.5% upside from its current trading price of $520.37. Furthermore, a discounted earnings analysis unveils an even more enticing fair value of $818.13, showcasing a substantial 36.4% potential increase in share price.

The market appears oblivious to Ulta’s stellar fiscal 2023 results, with a nearly 10% boost in net sales reaching $11.2 billion and an impressive 5.7% surge in comparable sales. Operating income climbed by 2.4% to $1.7 billion, fueling a resilient bottom line of $1.3 billion in net income.

With expansion plans both domestically and internationally, Ulta positions itself for further growth. With a solid track record and promising growth prospects, Ulta Beauty emerges as a glittering opportunity among the under-the-radar stocks begging to be unearthed.

UnitedHealth Group (UNH)

The UnitedHealth (UNH) headquarters in Minnetonka, Minnesota.

Source: Ken Wolter / Shutterstock.com

UnitedHealth Group (NYSE:UNH) shines brightly among the underappreciated stocks with substantial long-term potential. This healthcare stalwart operates through UnitedHealthcare, catering to over 52 million global health beneficiaries, and Optum, its data-driven healthcare services division serving a varied clientele.

UnitedHealth’s stellar financial results underscore its market value, with revenues soaring to $371.6 billion in 2023, driven by robust growth in both core segments. Operating earnings surged by 14% to $32.4 billion, surpassing $29.1 billion in operating cash flow, exceeding net income.

Despite its strong performance, UnitedHealth remains significantly undervalued, with a fair value projection of $739 per share, promising an alluring 33.7% upside from current levels near $490. The company’s prudent acquisition strategy has propelled substantial growth, augmenting its revenue by over $100 billion since 2012.

With expanding service offerings and promising international ventures on the horizon, UnitedHealth Group remains a beacon of opportunity among the overlooked stocks waiting to be embraced for long-term gains.

STMicroelectronics (STM)

The Bright Future of STMicroelectronics: An Undervalued Gem in the Semiconductor Industry

STMicroelectronics (NYSE: STM), a global semiconductor powerhouse, shines as a hidden gem in the stock market, boasting remarkable undervaluation among its peers. Trading at a mere 28.4x price-to-free-cash-flow ratio, significantly lower than its own 10-year median of 34.2x, STM presents an enticing investment opportunity. The stock’s free cash flow yield of 3.7% positions it in the top echelon of the semiconductor sector.

An Underpriced Potential: Peter Lynch’s Metric

Inspired by the legendary investor Peter Lynch, a closer look at STM reveals a compelling narrative of undervaluation. With a PEG ratio of 0.33, well below Lynch’s threshold of 1.0 for undervaluation, STMicroelectronics emerges as a diamond in the rough. According to this metric, the company’s fair value stands at an impressive $114.63, reflecting a premium exceeding 160% over its current trading price of approximately $43.

A Glimpse at the Financial Fortitude

Despite its discounted valuation, STMicroelectronics unveiled robust 2023 results, demonstrating a resilient financial performance. The company witnessed a 7.2% revenue surge, reaching $17.3 billion, with automotive and industrial segments driving 71% of total sales. Noteworthy margin expansion of 40 basis points to 45.9% and an 11% rise in operating cash flow to $4.0 billion further solidify its financial position. Additionally, STMicroelectronics fortified its net cash reserves to over $3.1 billion, exemplifying its financial strength and stability.

Future Forward: Riding the Wave of Innovation

Looking to the horizon, STMicroelectronics is strategically positioned to capitalize on prevalent semiconductor trends, with a strong focus on electrification, automation, industrial systems, and energy solutions. The company’s ambitious investment plans to enhance manufacturing capabilities, particularly in advanced 300-millimeter and silicon carbide facilities, underscore its commitment to sustainable growth. Furthermore, STMicroelectronics is spearheading advancements in artificial intelligence through its cutting-edge STM32 platform, setting the stage for future technological breakthroughs.

A Hidden Treasure Amidst Market Volatility

Amidst market fluctuations and economic uncertainties, STMicroelectronics emerges as a beacon of stability and growth. With its shares trading at a significant discount but underpinned by robust financials and promising growth prospects, STMicroelectronics presents a compelling opportunity for investors seeking long-term value appreciation.

On the date of publication, Andrea van Schalkwyk did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Andrea van Schalkwyk is a value investor who adheres to the principles of the renowned Warren Buffett and his mentor Benjamin Graham. He holds a Master of Engineering (MEng) from the University of Padua and an Executive MBA from the CUOA Business School.