In this article, we discuss the 10 undervalued cyclical stocks to invest in according to analysts. To skip the detailed analysis of current market conditions and cyclical stocks, go directly to the 5 Undervalued Cyclical Stocks To Invest In According to Analysts.
The stocks that follow the patterns of the economy are known as cyclical stocks. Investors usually prefer these stocks during robust economic conditions and ignore them during downturns. However, this is just a general definition and every economic cycle is different. For example, energy is usually considered a cyclical sector, yet it was the best-performing sector in 2022 when inflation reached record highs, averaging 8% in 2022. By the end of the year, the Energy Select Sector SPDR Fund (XLE) had gained nearly 58% while the S&P 500 experienced its worst year since 2008, declining by 18.1%.
In 2023 and the first quarter of 2024, the S&P 500 had a tremendous run, gaining nearly 25%, and 11%, respectively. However, we have been recently seeing some signs of correction as it has declined by over 4.6% month-to-date on April 18. The conflicts in the Middle East and higher-for-longer interest rates leading to US treasury bonds reaching their 6-month highs of 4.67 % on April 16, may lead some cautious investors to opt for some low-volatility or counter-cyclical stocks. Nevertheless, the strong earnings season and easing inflation could prove to be beneficial for the more cyclical stocks.
Global Growth Forecasts Raised
Despite the recent declines in the market, the International Monetary Fund (IMF) believes that the global economy is still showing resilience. On April 16, it raised its global growth forecasts by 0.3% from October levels. The IMF now predicts global growth to be 3.2% in 2024 and 2025, similar to the levels experienced in 2023. It believes in “stronger activity” from the U.S., China, and other large emerging markets. Nevertheless, weaker activity is predicted in the Euro area. Furthermore, the IMF predicts the median inflation to come down to 2.8% by the end of 2024 and 2.4% in 2025, compared to 4% by the end of 2023.
Performance of Our Prior Cyclical Recommendations
We previously provided a list of the best cyclical stocks on November 2, 2023, and our top two stock picks were Amazon.com, Inc. (NASDAQ:AMZN) and The Walt Disney Company (NYSE:DIS). Both of these companies have outperformed the broader market between November 2 and April 18 and also on a year-to-date basis. Since November 2, 2023, Amazon.com, Inc. (NASDAQ:AMZN) is up nearly 30% and The Walt Disney Company (NYSE:DIS) is 35% higher, compared to the S&P 500’s 16% gains. On a year-to-date basis, the former is up over 19.5% and the latter has gained nearly 24% on April 18. Furthermore, analysts are still highly bullish on both these stocks and believe in significant upside potential for both.
According to TipRanks, Amazon.com, Inc. (NASDAQ:AMZN) has been covered by 42 Wall Street analysts and all of them rate the stock a Buy. Their average price target of $212.36 shows an 18% upside from its current levels on April 18. On April 18, DA Davidson analyst Gil Luria maintained a Buy rating on Amazon.com, Inc.'s (NASDAQ:AMZN) stock with a $235 price target. The analyst believes that the company's expansion plans look promising with plans to add 45 million square feet of new space this year, focusing on delivery and fulfillment centers, especially in California and Phoenix. This expansion, along with increased delivery stations, strengthens Amazon.com, Inc.'s (NASDAQ:AMZN) competitive position against USPS, United Parcel Service, Inc. (NYSE:UPS), and FedEx Corporation (NYSE:FDX). The investment management firm, Polen Capital, also believes in the company and predicted significant margin expansion in its first quarter 2024 investor letter. The firm made the following comments:
“Amazon.com, Inc. (NASDAQ:AMZN) is our largest position. Much of our investment thesis is based on solid and durable earnings growth from its three biggest businesses (e-commerce, AWS, and advertising) and disciplined expense management that has supported robust margin expansion and earnings growth. It was only about a year ago that Amazon’s margins bottomed at 1.9%. They are now back to roughly 8%, and we think they can expand significantly.”
The Walt Disney Company (NYSE:DIS) was covered by 26 analysts over the last three months and 23 of them maintain a Buy-equivalent rating on the company and the average analyst price target shows a 14% upside at the time of writing on April 18. On April 11, JPMorgan resumed coverage of The Walt Disney Company (NYSE:DIS) with an Overweight rating and raised its price target to $140 from $120. The firm acknowledged challenges such as declining pay TV subscribers and advertising difficulties faced by the company’s traditional business segments, but suggests that the company can navigate these hurdles through substantial cost restructuring efforts, especially within its linear networks. The Walt Disney Company’s (NYSE:DIS) CEO, Bob Igor, is also very optimistic about the future of the company and made the following comments at its latest earnings call:
“Just one year ago, we outlined an ambitious plan to return to a period of sustained growth and shareholder value creation, and our strong performance in this past quarter demonstrates that we have turned the corner and entered a new era. As previously noted, we're focused on transitioning ESPN into the preeminent digital sports platform, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences.”
Even though the market saw some pullback in recent days, experts still believe that these minor corrections do not significantly define the broader view of the market and are still bullish. For such conditions, some of the most undervalued cyclical stocks to invest in according to analysts include ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).
10 Undervalued Cyclical Stocks To Invest In According to Analysts
Our Methodology
For this article, we scoured through the Yahoo Finance and Finviz stock screeners to find stocks in all the cyclical sectors such as consumer discretionary, energy, financials, and materials, and more, with price-earning ratios of under 15 and market capitalization of over $10 billion. Next, we shortlisted our list to 25 stocks with Buy or better ratings and further narrowed down our list to 10 stocks with the highest average analyst price targets on April 18. The analyst ratings were taken from TipRanks and the stocks are listed in ascending order of their average price target upside potential.
Hedge fund sentiment around each stock has also been added. The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds as of the fourth quarter of 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
10 Undervalued Cyclical Stocks To Invest In According to Analysts
Albemarle Corporation (NYSE:ALB) is engaged in the development, manufacturing, and marketing of engineered specialty chemicals. As of April 18, the stock has a PE ratio of 8.37.
In the fourth quarter of 2023, 27 hedge funds held positions in Albemarle Corporation (NYSE:ALB) worth $311.059 million. As of Q4 of 2023, Coatue Management is the most prominent shareholder in the company and has a position worth $85.47 million.
Over the past 3 months, Albemarle Corporation (NYSE:ALB) has received Buy ratings from 11 Wall Street analysts. The average price target of $144.32 has an upside of 29.43% from the current levels, as of April 18.
Albemarle Corporation (NYSE:ALB) has caught the attention of analysts. Other such stocks include ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).
“Albemarle Corporation (NYSE:ALB) – ALB underperformed as weak lithium prices drove downward revisions to earnings expectations, and sentiment became more negative regarding demand for electric vehicles. Commodity prices are inherently uncertain, but we continue to view ALB-as a winner in this growing industry and favorably positioned on the cost curve. Our long- term view of ALB is not affected by short-term supply- demand dynamics for the commodity.”
MGM Resorts International (NYSE:MGM) is an owner and operator of casino, hotel, and entertainment resorts. In Q4 of 2023, 45 hedge funds held positions in MGM Resorts International (NYSE:MGM), and their total stakes amounted to $941.959 million. As of the fourth quarter of 2023, Corvex Capital is the biggest shareholder in the company with a position worth $287.014 million.
In the last three months, 14 Wall Street analysts covered MGM Resorts International (NYSE:MGM), and 12 kept a Buy rating on the stock. The average price target of $57.00 represents an upside of 35.46% from the last price of $42.08, as of April 18. It is also trading at low valuations. The stock is trading at a PE ratio of 13.18.
“MGM Resorts International (NYSE:MGM) & Hyatt – Hospitality companies MGM Resorts and Hyatt were both strong performers in the fourth quarter and for the year, outperforming expectations that the post-COVID travel rebound would ease in 2023. Casino and online gaming company MGM saw double-digit revenue growth and strong 2023 bookings in Las Vegas in the first half, which moderated in the second half but remained solid. A cybersecurity attack negatively impacted 3Q results, but MGM does not expect the $100 million hit to have a material effect on its financial condition and operational results for the year. MGM bought back discounted shares at a 15% annualized rate and authorized another $2 billion buyback in 4Q, which represents another 15% of the company.”
Vale S.A. (NYSE:VALE) is engaged in the production and selling of iron ore and iron ore pellets for use as raw materials. Over the past three months, 10 Wall Street analysts have given their recommendations on Vale S.A. (NYSE:VALE), with 5 recommending to Buy the stock. As of April 18, the stock’s average price target of $16.56 implies an upside of 40.22% to its current price.
As of April 18, Vale S.A. (NYSE:VALE) has a PE ratio of 6.46. For the first quarter, the company’s iron ore sales increased by 15% year-over-year and its copper production was higher by 22% year-over-year.
Hedge funds with investments in Vale S.A. (NYSE:VALE) were 34 in the quarter, with positions worth $1.05 billion. Fisher Asset Management is the top shareholder in the company as of Q4 of 2023 with a position worth $288.05 million.
NetEase, Inc. (NASDAQ:NTES) is a provider of online games, music streaming, internet content, and more. The stock has a price-to-earnings multiple of 14.78 and is the seventh stock on our list of undervalued cyclical stocks to invest in according to analysts.
In the fourth quarter of 2023, hedge fund sentiment was positive toward NetEase, Inc. (NASDAQ:NTES). In the quarter, 36 hedge funds held positions in the company and their stakes amounted to $1.341 billion. This is compared to 25 funds in the preceding quarter, with positions worth $1.035 billion. As of the fourth quarter of 2023, Tairen Capital is the most significant shareholder in the company and has a position worth $164.307 million.
On April 9, NetEase, Inc. (NASDAQ:NTES) announced that it has renewed its publishing deal with Microsoft Corporation’s (NASDAQ:MSFT) Blizzard Entertainment. Under the deal, previous titles, including World of Warcraft, Hearthstone, Diablo, and others, will be brought back to the gaming market in China.
In the past three months, NetEase, Inc. (NASDAQ:NTES) has received Buy ratings from 11 Wall Street analysts. As of April 18, the average price target of $136.77 represents an upside of 48.12% from the last price of $92.34.
ZTO Express (Cayman) Inc. (NYSE:ZTO) is a China-based company that offers freight forwarding, and delivery services. The stock has a PE ratio of 13.59, as of April 18.
Based on 7 Wall Street analysts’ ratings over the past three months, ZTO Express (Cayman) Inc. (NYSE:ZTO) has a consensus rating of Strong Buy. The average price target of $29.71 has an upside of 49.75% from the present levels, as of April 18.
ZTO Express (Cayman) Inc. (NYSE:ZTO) was part of 20 hedge funds’ portfolios with positions worth $614.654 million in the fourth quarter of 2023. Platinum Asset Management is the top investor in the company with a position worth $304.046 million.
ZTO Express (Cayman) Inc. (NYSE:ZTO) is one of the undervalued cyclical stocks to invest in according to analysts, along with ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).
