3 Undervalued Stocks at 52-Week Lows: Cheap Investments

The markets were afraid of waking up to the Federal Reserve (the Fed) pulling the rug out. After discounting the proposed interest rate cuts for 2024, which according to the CME FedWatch tool should have been implemented by March, then May and now September, the markets have backtracked on the thought that these cuts would no longer be expected ‘year.

Fortunately for investors who understand where value and stability come from, major consumer discretionary stocks are included in this sell-off. One of the strongest stocks in the consumer staples sector also saw its price approach a new 52-week low.

Today, investor portfolios would be better served by adding Nike Inc. NYSE:DI, Starbucks Co. NASDAQ: SBUXand even Pfizer Inc. NYSE:PFE to their checklists. Each with their own merits, these companies become undeniable bargains to consider in the coming quarters.

Nike’s moat does not obey the cycle

Right. What once started as a discretionary item, the Nike brand has become a commodity across the US consumer market. Despite the burden of higher-than-expected inflation, US consumer confidence reached its highest level in 3 years.

Financial securities such as Bank of America Co. NYSE:BAC The earnings show a deteriorating credit card environment, with a decline in average FICO scores and an increase in credit card delinquencies. However, even these trends cannot stop Nike’s penetration.

Investors can imagine the positioning Nike finds itself in, but here is some real data. In 2023, Nike has captured 43.7% of the global sports apparel market share Adidas OTCMKTS: ADYY coming in second with nearly half of Nike’s gain at 23.7%.

Despite trading at 73% of its 52-week high, Nike’s future earnings are considered higher than Adidas’s, even though the stock is trading at 100% of its 52-week high today. A forward P/E ratio of 24x gives Nike a 45.6% premium over Adidas’ 16.5x valuation.

A consensus price target of $116.3 per share gives the stock a net upside of 22.3% from where it trades today. This $143 behemoth still manages to generate an average rate of return on invested capital (ROIC) above 15%, giving investors the chance to purchase this compound of wealth at generationally low prices.

Generational wealth at Starbucks

Once just another coffee shop, Starbucks is now one of those inflation-resistant stocks that can’t seem to stop growing. Price increases of up to 4% over the past year, according to the company’s first-quarter 2024 earnings release, demonstrate the brand’s ability to keep profits above costs without impacting demand.

Through this pricing power, management can get the company’s retained capital to grow at ROIC rates of up to 23% annually, one of the reasons behind the stock’s stellar five-year performance of 141%.

Now trading at just 76% of its 52-week high price, the stock could soon become a price target. Based on the P/E ratio, Starbucks stock still commands a premium of close to 15% in its 23.5x multiple to the retail sector, despite the stock price having fallen to these levels.

Through a current consensus price target of $106.7 for Starbucks, Wall Street analysts are calling for an upside of up to 21% for the name it trades under today. Furthermore, the institutional quality of the stock is still intact, as up to $21.8 billion has flowed into Starbucks over the past 12 months.

Pfizer’s daily reliability

Exposed to the explosive characteristics of some pharmaceutical stocks, which tend to bounce back on drug testing news, Pfizer brings with it all the excitement of a small-cap name with much of the stability that comes with a $150 billion behemoth.

Part of the low beta group, this stock is devoid of volatility, making for a great potentially “passive” buy and hold strategy. Stocks are so cheap today; at just 65% of its 52-week high, its dividend yield has risen to levels not seen since the 2008 financial crisis.

Paying investors a 6.4% yield helps them overcome stubbornly high inflation rates in the U.S. and stay above 10-year Treasury bonds, which currently pay 4.6%.

Wall Street analysts have set price targets at $36.3 per share, and more recently (as of April 2024), those at Cantor Fitzgerald have seen fit to raise valuations to $45 per share. To prove these analysts right and close out the generationally low price, the stock would need to rally as much as 71% from where it trades today.

Before you consider adidas, you’ll want to hear this.

MarketBeat tracks daily Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and adidas wasn’t on the list.

While adidas currently has a “buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here