Have U.S. equities valuations become too rich? Given Tuesday’s market performance, the answer is probably “yes.” On Tuesday, the Nasdaq Composite slipped 0.95%, while the S&P 500 fell 0.72%. U.S.-listed stocks in general haven’t had a good start to the quarter, but the current elevated nature of trading valuations could be a key reason why.
At some point trading multiples need to come back down to reality. That’s why it’s important to discover and allocate to undervalued stocks. Stocks are considered “undervalued” when they trade below what people think their intrinsic value is. Basically, in this scenario, market has not fully recognized the stock’s “true potential.”
Potential value investors can find many stocks that are undervalued if they look for stocks trading below a certain dollar amount per share. In this list, in particular, we will be looking at stocks I feel are undervalued that are trading at below $20/share. These stocks have intriguing fundamentals and are operating in burgeoning sectors with strong secular tailwinds.
IonQ (IONQ)
The artificial intelligence (AI) craze continues to move the market. Generative AI produces like ChatGPT have done so much to capture the imaginations of Wall Street analysts, political commentators and everyday people alike. Quantum computing, however, could very well be the next revolutionary step in computing. Thus, holding a quantum computing stock could be worth it in the long run.
IonQ (NYSE:IONQ) happens to be the first pure-play among publicly traded quantum computing stocks, and the company is a leader in trapped-ion quantum computing, which uses electrically charged atoms to store and manipulate qubits.
To date, the company claims to have built the world’s most powerful quantum computer which has achieved a quantum capacity 32 qubits. IonQ plans to launch modular quantum computers by the end of 2023. To make the computing power of its quantum computers more accessible, IonQ has made its quantum computing power accessible to customers and developers through large cloud platforms.
IonQ ended 2023 with another successful quarter. Fourth-quarter earnings results saw the quantum computing firm generate full-year revenue figures well above the high end of its guidance range. This was the same for bookings. IonQ also announced the production of its Enterprise Forte quantum computer in its Seattle manufacturing facility. Deliveries for these quantum systems are slated for the end of 2024.
IonQ’s shares are down almost 25% on a year-to-date basis, which could make a good entry point for new investors or investors willing to increase their investment. Quantum computing, similar to generative AI, has the potential to be the next big thing in technology, and IonQ is at the forefront of the space.
Nu Holdings (NU)
Warren Buffet-backed Nu Holdings (NYSE:NU) is the holding company of the largest digital bank in Latin America, Nubank and only trades at just around $12/share. The Latin American neobank has plenty of potential to rise even more.
With over 90 million customers in Brazil, Mexico and Colombia. Nubank offers a range of products, such as credit cards, personal loans, savings accounts and insurance. While 94% of Nubank’s users are in Brazil, the company has made impressive strides to grow its business in its new markets, with Mexico being a main geography of interest. The Brazilian digital bank’s customer count in Mexico reached around 4.1 million as of their third quarter earnings report. In their fourth quarter report, the number of Nubank users in Mexico increased 34% to 5.5 million. This underscores the platform’s ability to grow in a relatively fragmented market in terms of fintech products and users. Nubank’s growth potential in Mexico, a large banking market, represents how NU is undervalued and could trade even higher.
Shares are up 42% in 2024 on a year-to-date basis, yet the company’s valuation only floats around 5.1x forward sales and 30.1 forward earnings. If Nubank continues to break into Mexico, where the company has applied for a banking license to offer savings accounts, the company can expect strong growth for years to come.
DHT Holdings (DHT)
Shipping stocks are likely to benefit from a huge windfall in 2024, and DHT Holdings (NYSE:DHT) is likely to be one of these beneficiaries. DHT, in particular, is a leading oil tanker company with a fleet of 21 very large crude carriers (VLCCs) that can each carry up to 2 million barrels of oil. The company had spent the latter half of 2023 benefitting from higher “ton-miles” due to strong demand from East Asian countries, particularly from China, and the need to source crude from the United States, Brazil and Guyana as Russia and Middle Eastern petrostates pursued supply cuts.
Geopolitical factors continue to keep shipping rates elevated. Despite U.S and U.K. efforts, the Yemen-based Houthi rebels are still a problem in the Red Sea. Many shipping companies have directed their vessels to take the long way in order to reach Europe. Moreover, these kinds of asymmetric geopolitical conflicts are not likely to be resolved with simple solutions. Moreover, the Panama Canal remains clogged, and the recent collapse of a Baltimore bridge, which has currently prevented access to a key trading port, could also put upward pressure on shipping rates.
DHT ended 2023 with revenues up 23% to $556.1 million and EPS up 267% at $0.99/share. The oil tanker company current trades at around 7.5x forward earnings.
On the date of publication, Tyrik Torres 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.
