One of the most popular investment philosophies remains that of seeking value stocks. It is what Warren Buffett has committed to since his early days in the financial world, and also what turned him into a kingpin. Identifying stocks that are trading at prices far below their intrinsic value is a sure way of seeing one’s capital takeoff. Unlike growth stocks, investors that target value stocks are always on their toes, calculating the best entry and exit points. Although this may entail a higher degree of risk, as well as a more active approach to investing, its rewards far outweigh the costs.
Historical trends suggest that since the financial crisis of 2008, value stocks have consistently underperformed growth stocks. The present macroeconomic circumstances, however, have put these dynamic investments back in the game. High rates of inflation and even higher rates of interest spell bad news for growth chasers. This brings out a wonderful opportunity for value stocks. In this article, we bring forward five highly promising value stocks to invest in.
Broadmark Realty Trust
We start off our list with the highly promising mortgage REIT, Broadmark Realty Trust (NYSE: BRMK). Few names are as compelling as BRMK, especially given the sheer value it offers at its current price. The REIT has, over the course of the last decade, established itself as a hard lender to real estate developers. It has its loans diversified over 19 US states. In its total historical portfolio worth over $3.8 billion, its cumulative losses stand at only $12 million, since 2010.
Given that much of BRMK’s earnings comes from interest-bearing loans, the present circumstances potentially enhance its prospective earnings, especially from a forward-looking standpoint. Earlier this week, the chair of the US federal reserve confirmed plans for further interest rate hikes. With record levels of inflation on the horizon, the conditions are ripe for mREITs such as BRMK to take the lead. BRMK in particular stands to climb high because of its excellent metrics. For one, it holds the lowest level of debt-to-equity ratio of all mortgage REITs, standing at only 8.6%. Similarly, its dividend yield stands at an incredible 12.2%, whereas the median yield in the mREIT sector is a mere 3.15%.
BRMK is excessively undervalued given its price, which has fallen 36% in the last 12 months. Despite this, it stands as being extremely well-positioned to increase interest rates and deliver an attractive return to its shareholders. This value stock is a must-buy.
Next up on our list, we present the healthcare equipment manufacturer and supplier, Hologic Inc., (NASDAQ: HOLX). The stock is an extremely resilient one, given the nature of the market it serves, as well as the present opportunities in healthcare, considering Covid-19 spread in the US market. As a result, the company has managed to consistently surpass every estimated quarterly EPS figure since 2020.
Since 60% of Covid-related sales take place in the US market, HOLX stands well positioned to continue its growth trajectory, well into the future. This is partly why the company had seen a $73 million upside surprise in its recent quarter 3 results. This had come about given the 8.1 million Covid tests supplied to US consumers.
Another core factor that makes HOLX a value stock, is its impressive free cash flow generation, which severely boosts the company’s financial position. As a result of this inherent Hologic capability, cash holdings for the company shot up from $827 million to $2.3 billion in its most recent quarter, on a year-on-year basis. This leaves ample liquidity for the company in order to invest in expansionary measures, as well as further research and development. Despite such strong fundamentals, as well as stellar opportunity, HOLX has dropped by over 15% in the last 12 months. As a result, it is trading far beneath its fair value, making it an excellent value stock to add to one’s portfolio.
Moving on to the third value stock on our list we present ResMed Inc (NYSE: RMD). In terms of medical devices and cloud-based healthcare software, RMD is perhaps one of the most compelling stocks to go after. Its incredible value makes it even more appealing. The company is a long-term cash compounder and is situated in a market that makes it highly resilient to macroeconomic volatility and shocks. As a result, those holding RMD in the long term have enjoyed epic capital appreciation. In just the last decade, the stock ballooned from $30 to almost $250. Despite such an impressive price trajectory, this growth engine is far from slowing down.
In its recent most quarter, both its top line and bottom line performance had seen improvement by 4% and 6% respectively. This comes at a time when the wider healthcare industry had been seeing tightening financial figures given the cooling off of the Covid-19 pandemic. Even though ResMed’s Covid-19 revenue segment shrunk by $20 million, it still achieved growth due to its impressive product diversification, making it a highly robust stock worth considering.
Despite its track record of success and an apparent continuation of its growth engine, the stock still finds itself having fallen by over 24% in the last 12 months. This exceeds the drop in the wider S&P 500 which had shed by about 11%. The stock has all the markings of a significant undervaluation, especially considering its top and bottom line growth in an environment where most are struggling.
Number four on our list is Domo Inc., (NASDAQ: DOMO) a business intelligence cloud-based business. The stock is one that has seen a serious plummet during the year, especially in the prior week. The stock tumbled along with the wider market, following the statement of the chair of the Federal Reserve, indicating further interest rate hikes. Moreover, disappointing Q2 results further sent the market into a panic, causing a 30% drop in DOMO, in a matter of hours. However, when taking a forward-looking approach at the bigger picture, the stock remains highly valuable, despite these short-term hitches. There is ample evidence to suggest that DOMO has experienced a panic-driven price plummet, which hardly stands justified against its broader strengths
Although quarterly revenue climbed from $54 million to $67 million, on a year-on-year basis, in the recent quarter, net loss per share had increased from 70 cents to 86 cents. This was primarily the result of macroeconomic headwinds which increased costs, as well as heavy spending on research and development. Despite this, however, the company’s margins have improved significantly, with gross profit rising from $46 million to $57 million, on a year-on-year basis. Because of these high pro forma gross margins, Domo stands positioned to scale up with profitability over time.
Moreover, the company’s small size and unique business intelligence capability have made it a likely candidate for acquisition by a larger tech company, as many analysts have suggested.
For these reasons, there is hardly a better value stock in the business intelligence space to consider than DOMO.
Garrett Motion Inc.
The final stock on our list, and far from being the least is the auto parts and equipment star, Garrett Motion Inc (NASDAQ: GTX). The company specializes in turbo-charger and electric-boosting technologies. It recently made the rounds on the news in June, after redeeming its entire Series B stock. This redemption involved almost 218 million shares, for which the company paid an aggregate of $212 million. This resulted in a massive debt reduction which pushed down Garrett’s EBITDA ratio from 2.33x to 1.87x.
In the company’s most recent quarter, it saw a slight top-line decline from $901 million to $859 million. This was primarily a result of the wider macroeconomic headwinds, and particularly the closure of Chinese facilities in the wake of Covid-related restrictions. This impacted production and also disrupted supply chains. Despite this, GTX gained nearly 3% this year, whereas the wider market saw a 12% dip. In just the last four months, however, the stock saw an epic 30% rise.
With the restrictions finally cooling off, the growth engine is well on its way to seeing a stellar resumption. Garrett Motion taps into a giant market and stands well-positioned to climb high in the future. Its present price, despite the rise it has seen, is still far from where its true value lies.
Investing in value stocks is perhaps the most proven way of turning one’s savings into a fortune. It entails the most technical domain of investment and a perceptive mind towards the shifts and shocks in the wider environment. For those that have identified specific stocks that have trade prices far below calculated valuations, the best choice would be an early buy, so as to beat the market. We here at Stocks Telegraph are confident that the stocks presented on this list offer immense promise to anyone that is quick in adding them to their portfolios, and are highly likely to result in a soaring climb, as these undervalued stocks approach their intrinsic values.