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If you’ve run out of ideas, why not revert to good old value investing? I mean, buying securities at discounts isn’t a bad strategy, especially when their fundamentals are aligned. Moreover, interest rates remain elevated, meaning value stocks are likely better placed than growth stocks for the time being.
An issue with value investing is that value traps are a frequent occurrence. As such, I decided to apply a robust screening methodology to identify three best-in-class value stocks. Methodologically, my screening process emphasized fundamental aspects and technical analysis. Additionally, I ensured that each pick had the necessary systematic support.
Considering the above, here are three undervalued stock gems to consider.
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National CineMedia (NCMI)
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National CineMedia (NASDAQ:NCMI) is an advertising company that distributes content via cinemas, online devices, and mobile. I think NCMI stock is an excellent opportunity, as many have grown overly pessimistic about the cinema business post-Covid-19, yet National CineMedia’s fundamentals have rebounded sharply. Moreover, NCMI stock has a forward enterprise value-to-sales ratio of merely 1.6x, placing it in deep value territory.
Some might be concerned by the firm’s aging business model. However, NCMI’s first-quarter revenue increased by 7% year-over-year to $37.4 million amid a 31% increase in advertising revenue, suggesting its headline features are intact. Furthermore, the firm has scope to diversify into digitalized offerings, meaning we could see a rejuvenated growth stage unfold in due course.
Lastly, National CineMedia announced a share buyback program in March, which would see it repurchase about $100 million in stock by April 2027. The program naturally lowers NCMI stock’s cost basis, allowing investors to share in an open market-driven value adjustment.
British American Tobacco (BTI)
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British American Tobacco’s (NYSE:BTI) stock seems like a deal that is too good to be true. The company’s stock battled negative sentiment in the past few years due to a restructuring period. However, BTI stock’s prospects are bright.
Contrary to what most might think, British American Tobacco has become a modern company. The firm recognized that it had to diverge from being a burning tobacco pure play and consequently moved into modern-era product lines. Non-combustible products now comprise 16.5% of British American Tobacco’s revenue mix.
Furthermore, the company has shown conviction in the cannabis industry by upping its stake in Canadian cannabis producer Organigram (NASDAQ:OGI) to 45%. This level of intent, paired with the firm’s commitment to non-combustible product development, illustrates that British American Tobacco is committed to seeking renewed growth for its shareholders.