Undervalued stocks are getting harder to come by in today’s overextended market.
In yesterday’s Wall Street’s Best Daily, I warned that many stocks in the technology sector have surged too far and too fast in 2017. If technology stocks make up more than 20% of your investment portfolio, you might consider selling part or all of a few of your tech stocks to rebalance your portfolio allocation. I also suggested that the total amount of your holding in any one sector should not exceed 20%.
I have assembled this list of five stocks that are selling at bargain prices and will therefore hold up well if the stock market stumbles.
Here are five undervalued stocks to buy now:
Undervalued Stock #1: Blackstone Group LP (BX)
Blackstone Group raises capital for, invests in and manages private equity, real estate and hedge funds. The company’s revenue and earnings vary wildly from quarter to quarter, depending on gains and losses from asset sales and fees earned. Blackstone is a limited partnership and reports income and expenses on IRS Schedule K-1 sent to investors after each year-end.
Blackstone has been actively selling some of its major real estate holdings, with a focus on hotels, to institutional investors in China. These sales will generate substantial revenue and earnings in 2017. Revenue will likely advance 19% in 2017 and EPS (earnings per share) will jump 30%. Blackstone’s superior investment returns are attracting substantial capital inflows, driving assets under management significantly higher.
At 12.3 times current earnings, BX shares are clearly undervalued. Blackstone’s dividend yield stands at 7.8%, which is very attractive. Earnings will receive an additional boost if interest rates rise, inflation increases, or financial regulations are eased by the Trump administration. Buy.
Undervalued Stock #2: EQT Midstream Partners LP (EQM)
EQT Midstream Partners owns, operates, acquires and develops midstream assets in the Appalachian Basin. Midstream assets include the processing, storing, transporting and marketing of oil, natural gas and natural gas liquids. EQT Midstream operates through two segments: Transmission and Storage, and Gathering Systems.
EQT Midstream’s operations are primarily focused in southwestern Pennsylvania and northern West Virginia, a strategic location in the core of the natural gas shale areas known as the Marcellus and Utica Shales. EQM has become a leading Appalachian Basin midstream energy company.
Sales will likely advance 15% and EPS will rise 7% to $5.68 in 2017. Management expects rapid growth in 2017, which could receive a boost from the Trump administration if pipeline construction restrictions are loosened. With a price to earnings ratio (P/E) of 13.2 times current EPS, EQM shares are clearly undervalued. EQT Midstream raised its quarterly dividend for the 20th consecutive quarter. The raise to $0.89 from $0.85 increases the dividend yield to 4.5%. EQM forecasts 20% growth in its annual per unit distribution for 2017. Buy.
Undervalued Stock #3: LyondellBasell Industries NV (LYB)
Based in Rotterdam, The Netherlands, LyondellBasell Industries is one of the largest plastics, chemicals and refining companies in the world. Lyondell produces and markets olefins and other petroleum-based products. These include ethylene and ethylene components, which are used in many segments of the economy, including the manufacture of consumer goods; packaging, housing and automotive components; and other durable and nondurable goods. Lyondell’s refining segment is a significant producer of gasoline and diesel fuel and gasoline blending components.
Falling oil prices negatively impacted sales and earnings during the past two years. Future results will be aided by increasing global demand for petrochemicals and more favorable raw material costs from a projected increase in the U.S. natural gas supply. LyondellBasell’s capital expenditure program will also help to drive EPS growth from investments in high return projects. Management also expects to realize additional gains through cost cuts and operational improvements.
Sales will likely increase 6% and EPS will rise 1% to $9.90 in 2017. A pickup in the U.S. economy, increased infrastructure spending and the possibility of lower corporate tax rates could enable sales and earnings to grow much more rapidly. At 8.5 times current EPS, LYB shares are clearly undervalued. The company’s stout cash flow has enabled management to shape up the balance sheet after LyondellBasell’s emergence from bankruptcy in 2010. Buy.
Undervalued Stock #4: Toll Brothers (TOL)
Toll Brothers designs, builds and markets single-family and condominium homes usually in luxury residential communities. The company also arranges financing for its homes and condos. Toll has added lower priced homes, currently in high demand, to its repertoire to attract first-time buyers. The company also develops, owns and operates golf courses and country clubs associated with its master planned communities. The company operates in 19 states in the U.S.
Currently, demand for new homes exceeds supply. Toll’s backlog of homes to build surged 19%, which bodes well for additional gains during the next several quarters. Toll’s sales will likely increase 11% during the next 12 months, while EPS could rise 30% to $3.18. The company’s April 30 backlog value rose 14% from a year ago, which bodes well for the remainder of 2017.
TOL shares sell at 13.6 times current EPS, and the company maintains a very strong balance sheet with lots of cash to fund future operations. Buy.
Undervalued Stock #5: Triumph Group (TGI)
Triumph Group makes a wide variety of structural products for military and commercial aircraft, and designs, manufactures and retrofits a variety of aircraft components. The company serves a broad, worldwide spectrum of the aviation industry, including original equipment manufacturers of commercial, business and military aircraft and aircraft parts suppliers, as well as commercial and regional airlines and air cargo carriers.
Sales and earnings have suffered during the past 18 months because production at Boeing, Airbus and Gulfstream for older aircraft models slowed. New management is implementing a plan to downsize the company’s manufacturing operations, improve efficiency and cut costs. Several aircraft makers will begin work on new aircraft in 2017, which will provide a boost to sales for Triumph. The company also won a new contract from Raytheon.
Sales will likely slip another 4% during the next 12 months because of TGI’s ongoing downsizing. EPS will rise 5% to $4.50 spurred by management’s new plan to streamline operations throughout the company. A corporate income tax cut by the new Republican administration could propel earnings considerably higher. The company’s current tax rate is 30%.
Triumph Group reported much better results for the quarter ended March 31. Sales dropped 13% but EPS skyrocketed 114%. Management’s restructuring plan produced better than expected results. New contract wins also added sales and earnings. Triumph settled its dispute with Bombardier, which clears the way for future business between the two companies. TGI shares sell at only 7.2 times current EPS and 3.7 times cash flow, which is extremely low. Buy.
Until next time, be kind and friendly to everyone you meet.