While the idea of betting on a strong enterprise in the hopes that it will rise even higher is a valid one, arguably most investors prefer the opposite concept: finding undervalued stocks – especially those that Wall Street may be ignoring – that have a chance of shocking everyone.
It’s a riskier approach, to be sure. When betting on a strong enterprise, you’re typically dealing with a robust business that enjoys a predictable revenue stream. When looking at undervalued stocks, the business itself may be strong. However, shifting economic or market dynamics could mean that the predictability component is now suspect.
Still, investors usually don’t see outsized returns from playing it safe. In order to enjoy significant rewards, one usually must take bigger risks. That’s not just investing: that’s life. If you prefer a more conservative approach to your money, these ideas might not be appropriate. However, if you don’t mind being adventurous, then check out these undervalued stocks.
TSMC Taiwan Semiconductor Manufacturing Company (TSM) logo displayed on mobile phone screen
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To be sure, chip foundry Taiwan Semiconductor (NYSE:TSM) is hardly a name that Wall Stret is ignoring. However, the semiconductor giant – often abbreviated as TSMC – suffered heavily last week in the tech sector fallout. Circumstances in the market remain ugly, which is why many are jumping ship. However, that could be a mistake.
Right now, shares trade at 11.28X trailing-year sales. That’s elevated compared to the broader semiconductor industry. Also, in the past year, the metric sat at 9.42X. There could be more downside to come. However, if the multiple reaches firmly into the single digits, it may be time to consider getting back on the bullish side of the transaction.
Keep in mind that analysts project a huge uptick in the top line. By the end of fiscal 2024, sales could rise to $86.22 billion, up 24.2% from last year. Assuming a shares outstanding count of 5.19 billion, TSM stock currently trades around 9X projected sales.
In the back half of last year, the average sales multiple was 7.08X. We’re getting close to TSM being one of the clear undervalued stocks to buy.
ASML (ASML)
Closeup of mobile phone screen with ASML logo on computer keyboard
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Again, it’s difficult to state that tech specialist ASML (NASDAQ:ASML) – which focuses on lithography for the printing of intricate designs on silicon wafers – is overlooked. However, ASML stock suffered badly from last week’s tech sector rout. Investors have continued to express concerns about the equity as recession fears spike.
Still, for those interested in overlooked stocks, ASML could present a tempting opportunity. Currently, shares trade hands at 11.58X sales. That’s not discounted by any means relative to the underlying industry. However, in the past year, the metric landed at 11.46X, meaning the current premium isn’t all that elevated.
What’s more, during the second quarter, the market accepted a multiple of 14.41X. It’s conceivable that when bullish circumstances return, ASML stock could rise to its former valuation. Also, keep in mind that in a year-and-a-half from now, analysts project sales to hit $40.45 billion. That’s up from the $29.4 billion posted in 2023.
Assuming a shares outstanding count of 393.2 million, ASML is currently trading at 10.8X projected sales. Therefore, it’s one of the contextually undervalued stocks to keep on your watchlist.
GigaCloud Technology (GCT)
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A higher risk but higher-reward idea among undervalued stocks, GigaCloud Technology (NASDAQ:GCT) falls under the infrastructure software industry. It provides end-to-end business-to-business e-commerce solutions for large parcel merchandise in the U.S. and internationally. It got beaten down heavily in the tech sector rout and continues to attract pessimism. For contrarians, though, GCT stock could be intriguing.
Presently, shares trade hands at 1.27X sales. At first glance, that seems like a hot premium due to the prior year’s average metric, which lands at 1.01X. However, keep in mind that in Q4 of last year, the metric stood at 1.28X. And in Q1 of this year, the multiple jumped to 1.55X. Therefore, with the right catalysts, GCT stock could rise to its former valuation.
What’s most intriguing about GigaCloud is the analysts’ forward projection. By the end of fiscal 2024, sales could hit $1.08 billion. That’s up 52.8% from the prior year. Assuming a shares outstanding count of 32.91 million, GCT is trading at 0.78X forward revenue.
That’s getting very close to a buy-in argument considering that in Q3 of last year, the sales multiple sat at 0.68X.
TotalEnergies (TTE)
Logo on the sign of a TotalEnergies (TTE) gas station, new name of the French oil company Total
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One of the biggest integrated energy companies in the world, TotalEnergies (NYSE:TTE) might not get the same attention as some other stalwarts like Chevron (NYSE:CVX) or Exxon Mobil (NYSE:XOM). However, TTE definitely deserves attention as one of the undervalued stocks.
At the moment, shares trade hands at 0.75X trailing-year sales. This compares favorably to the integrated oil and gas industry, which runs an average multiple of 1.13X. Further, in the prior year, TTE’s price-to-sales ratio was 0.74X. Therefore, the market has been consistent with the pricing. In Q1 of this year, the metric stood at 0.77X.
However, analysts believe that by the end of fiscal 2024, sales could rise modestly to $242.9 billion, up 2.4%. Still, given the geopolitical backdrop, it’s not inconceivable that sales may rise to $291.4 billion, the high-side estimate. Assuming a shares outstanding count of 2.3 billion, the sales multiple would drop to 52.5X.
Notably, this stat would put it even lower than Q2 2023’s average multiple of 0.57X. TotalEnergies could be one of the undervalued stocks to buy.
Baytex Energy (BTE)
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A Calgary, Canada-based energy firm, Baytex Energy (NYSE:BTE) is easily one of the overlooked undervalued stocks to consider. For one thing, the company specializes in the exploration and production component of the hydrocarbon value chain. Also known as upstream, this segment could see increased demand as geopolitical flashpoints threaten global energy supply chains.
Second, BTE stock trades hands at approximately 1.31X last year’s sales. That’s low compared to upstream oil and gas players, which run an average multiple of 1.97X. In Q3 of last year, the metric stood at 1.33X.
Here’s the kicker: analysts believe that by year’s end, revenue could soar to $2.82 billion. That’s up 41.5% from last year. Further, the high-side estimate calls for $3.12 billion. Assuming a shares outstanding count of 804.98 million, the projected revenue multiple comes in at 0.83X.
Another factor to consider is the passive income. At the moment, Baytex offers a forward dividend yield of around 2%. While that’s not much compared to the broader energy sector, the discount combined with the passive income makes Baytex an attractive idea.
Ferroglobe (GSM)
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Headquartered in London, Ferroglobe (NASDAQ:GSM) is an interesting idea for adventurous investors seeking undervalued stocks. Per its public profile, Ferroglobe produces and sells silicon metal, along with silicon and manganese-based ferroalloys in the U.S., Europe and other international markets. These specialized chemicals are used in multiple industries, including healthcare and electronics.
Therefore, if you believe in the comeback potential of the innovation space, GSM stock should entice you. Right now, shares trade hands at 0.56X sales. That’s not bad considering that in the past year, the sales multiple averaged 0.55X. Also, in Q4 of last year, GSM traded hands at an average multiple of 0.72X.
Admittedly, analysts believe that in fiscal 2024, Ferroglobe will only achieve modest expansion – up 0.7% from last year. However, circumstances could get more exciting in the following year, when revenue may potentially rise to $1.8 billion. Assuming a shares outstanding count of 187.88 million, GSM would be trading around 0.51X projected revenue.
Add in a forward yield of 1.07% and you have a quiet but compelling case for undervalued stocks to buy.
Alibaba (BABA)
The Alibaba (BABA) logo featured outside of an office building with bushes in the background
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One of the most intriguing but perhaps contentious ideas for undervalued stocks is Alibaba (NYSE:BABA). China’s flagship enterprise, Alibaba used to receive all kinds of positive attention. However, since the struggles of the Chinese economy, BABA stock has been trading in a flat consolidation phase. That has made the equity overlooked. Still, it could be a mistake to ignore it indefinitely.
Looking at data from McKinsey & Company, several aspects of the Chinese consumer economy are positive. With household savings sky high in China compared to other regions, it’s possible that Alibaba could benefit. Right now, shares trade at 1.51X sales. That’s super high compared to the discretionary retail space overall. However, in the past year, the metric stood at 1.68X.
Also note that analysts believe fiscal 2025 (calendar 2024) sales could hit $142.4 billion. That would be up 9.7% from last year. Assuming a shares outstanding count of 2.38 billion, BABA stock is actually trading around 1.29X projected revenue.
That’s lower than the average seen at any point in the past five quarters. Therefore, BABA could be a buying idea right now.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
