Investing in undervalued stocks is like finding hidden treasures in the financial world. These stocks provide a cushion of safety, protecting investors from severe market turbulence. While not entirely risk-free, undervalued stocks hold the potential for substantial upside.
Some stocks remain undervalued for extended periods due to various reasons like negative news cycles or lack of exposure. However, once the market recognizes their true value, these hidden gems can soar to new heights.
Discovering undervalued stocks can be a lucrative endeavor, offering long-term investors a chance to capitalize on potential growth opportunities.
American Express (AXP)
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American Express (NYSE:AXP) stands out as a reliable moneymaker in the credit and debit card industry. With a robust business model, the company has consistently delivered stable returns and impressive profit margins, doubling its share value over the last five years while maintaining a modest 20 P/E ratio.
The company’s fiscal strength was further underscored by a 17% dividend increase this year. American Express reported an 11% year-over-year revenue growth and a substantial 23% increase in net income. The company’s optimistic guidance indicating revenue growth exceeding 10% and mid-teens EPS growth post-2026 offers investors a glimpse into its long-term prospects – a rare transparency in the corporate world dominated by short-term projections.
Comparatively, rivals Visa and Mastercard boast higher P/E ratios. While these giants enjoy superior profit margins, the revenue and net income growth rates of all three companies remain comparable. Furthermore, American Express currently offers the highest dividend yield among its peers.
Caterpillar (CAT)
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Moving away from the tech-dominated growth stocks, Caterpillar (NYSE:CAT) emerges as a strong market performer, with a remarkable 160% surge in share value over the last five years. This construction industry stalwart boasts an attractive dividend growth program, currently offering a 1.43% yield, trading at a modest 18 P/E ratio.
Caterpillar’s profit margins have been on an upward trajectory, hitting 15.7% in the fourth quarter of 2023. Moreover, the company reported a 3% year-over-year revenue increase and a whopping 84% year-over-year surge in net income during the same period.
The firm’s record-breaking full-year sales and revenue, along with its substantial stock buybacks and dividend disbursements totaling $5.0 billion, underscore its financial robustness. With $7.0 billion in cash reserves as of end-2023, Caterpillar’s resilience, spanning almost a century and surviving various economic upheavals, offers investors a stable investment outlook.
Deckers Outdoor (DECK)
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Deckers Outdoor (NYSE:DECK) continues its financial triumph, with brands like Hoka and Ugg driving revenue to an all-time high of $1.56 billion in the third quarter of fiscal 2024, marking a 16% year-over-year increase. The company’s profit margins expanded to 25%, boosted by a remarkable 40% year-over-year net income growth.
Investing in its future, Deckers Outdoor allocated capital towards stock buybacks, repurchasing $99.7 million worth of shares in the third fiscal quarter, with a remaining authorization of $1.046 billion. The company’s robust cash position, growing from $1.058 billion to $1.651 billion year-over-year, exemplifies its financial strength.
Deckers Outdoor’s impressive stock performance, surging 515% over the last five years and 34% year-to-date, reflects increased investor recognition of its worth. Despite joining the S&P 500 recently, the stock maintains a reasonable 32 P/E ratio, aligning with its consistent financial growth rates.
On this date of publication, Marc Guberti held a long position in DECK. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
