5 Stocks with Buybacks That Are Undervalued 

Barrick Gold Corporation (GOLD)

Warren Buffett made waves recently after it was reported his Berkshire Hathaway investment fund sold its entire $564 million stake in Barrick Gold earlier this year.

But the famed Oracle of Omaha might have been a little too quick on the draw, as the mining firm just posted one of its best quarterly results on record, smashing both earnings and revenue expectations, and reporting a positive net cash position – something it hasn’t been able to do for years now.

Furthermore, Barrick is paying down its debt load, and, with net cash of $33 million and its cash and cash equivalents of $5.18 billion, it already covers its liabilities of $5.16 billion in cash alone.

In fact, the company’s cash position is so strong now that it has chosen to embark on a return of capital distribution to its shareholders, as well as initiate an additional share buyback scheme too.

Barrick operates both gold and copper mines, and the strong trading price of each of those commodities makes the mining outfit look decidedly undervalued. Even a drop in value of either one of those assets shouldn’t derail its solid growth prospects, making this stock a very attractive buy.

Wheaton Precious Metals Corp. (WPM)

Another mining company that looks undervalued is Wheaton Precious Metals which, like many other precious metal purveyors, has benefited from high gold, silver and palladium prices of late. 

With the pandemic recovery seemingly on the way, gold prices slipped slightly as investors predicted an end to the supply constraints that marked the global lock downs. However, the economic bounce-back has stalled lately as COVID cases have seen an uptick in the U.S., and traders have seen fit to re-enter the gold market again, betting that the precious metal will be a good hedge against a lackluster reopening.

Wheaton’s production guidance for 2021 predicts it will hit its target of ~810,000 GEOs, and its ongoing strong margins suggest continued profitability. Its stock currently trades with a forward price-to-sales ratio of ~17. Compared with the Franco-Nevada Corporation, one of its peers in the mining sector, which trades at a price-to-sales of ~27, this gives Wheaton an enviable upside.

Given that Wheaton had a subdued start to year it’s entirely feasible that the company could even exceed its own guidance. The firm also operates a highly diversified portfolio which should insulate itself from an untoward price shocks, making the stock a safe play on current market conditions.

Overstock.com, Inc. (OSTK)

The e-Commerce retailer Overstock.com had an absolutely crazy year in 2020, seeing its share price rise from lows of $3.17 in March to a high of $128.50 in the space of just five short months. The company’s value has retraced since then, but still currently trades over 60x higher than its lows.

First quarter performance in 2021 exceeded many analysts’ expectations, with the firm hitting revenue of $660 million – which was just short of double what it made in the same quarter a year before.

No doubt the lingering pandemic tailwinds helped the company a lot, with a switch to online shopping during the coronavirus crisis driving much of this growth. But the firm also reported a record 9.9 million active users, up 92% from its 2020 numbers.

Overstock’s entry into the crypto space will make the company an attractive proposition for speculative investors seeking a bet on potential blockchain-based profits. The firm is also highly favored by Wall Street too, with Wedbush analysts touting a target price of $95, which would give it an upside of over 25% on its current value.

One note of caution would be the firm’s high forward PE multiple of 40x, which, given that year-on-year revenue growth is forecast to drop from almost 100% to 30% over the next twelve months, could represent a justified risk.

Conversely, however, the company has an extraordinarily low Price-to-sales ratio of 1.17, so the concerns might be somewhat overblown given the strength of this metric.

ConocoPhillips (COP)

There might be something contradictory about saying that the crude oil producer ConocoPhillips still has some upside left in its valuation, but the firm’s fundamentals and business prospects are so good that it’s simply too difficult to deny.

And although the company has doubled in price during its 14 month run up to the present day, the firm is trading nowhere near its previous historic highs. Add to that the fact that COP just announced a year-on-year increase of 53% in its adjusted EPS from $0.45 to $0.69, and you can see why there’s plenty of value left to be tapped.

But easily the most promising sign for investors looking to buy into ConocoPhillips is its recent acquisition of the exploration outfit Concho Resources. The deal saw COP buy Conoco at a large discount from its pre-pandemic valuation, and now makes Conoco one of the largest operators in the Permian Basin. 

The merger also gives the expanded company access to high quality Tier 1 acreage, allows for cost reductions through logistical synergies, optimizes future development aspirations, and further restructures its debt to what is now a manageable level.

Conoco’s CEO Ryan Lance believes he’ll see significant free cash flow generation through 2021, and could return 30% of cash flow from operations to company shareholders if all goes to plan. Bullish sentiment like that from the top boss implies a lot of upside still to come, and news that the company has reinstated its share buyback scheme should be music to investor’s ears.

PG&E Corporation (PCG)

The Pacific Gas and Electric Company is in a sticky situation at the moment. Due to the company’s mismanagement of wildfire prevention measures in 2020 – notably its failure to trim trees surrounding its most high-risk power line circuits – regulators in California took action against the firm, and chose ultimately to put PG&E into an oversight and enforcement process.

Because of this decision by the California Public Utilities Commission, Pacific Gas now faces a worst-case scenario of actually losing its operational license at some point in the future.

On the face of it this is obviously not good news – but it appears PG&E is actually trading at a discount right now, with investors having factored in too much pessimism in their appraisal of the company’s poor fortunes.

For example, Bank of America (BAC) earlier allocated Pacific Gas a Buy Rating, claiming the utility company currently trades at under 50% of its true value. It reckoned on PG&E’s inclusion into the iShares Global Clean Energy ETF (ICLN) – which did in fact happen – and staked out other near-term catalysts that could play to the firm’s benefit.

Regulatory oversight aside, PG&E does trade at a discount even relative to its nearest peers. But it’s definitely a risky move to invest now when the company’s fortunes are in the hands of a government body that has already seen fit to sanction to the firm. But for those brave enough, this could be a lucrative gamble.

> Bally Stock Buyback

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.