Top Undervalued Stocks For 2023: Finding undervalued stocks is essential if you want to maximize your investment gains over the long term.
By definition, an undervalued stock is one that trades for less than its intrinsic value, offering investors the potential for high-level returns.
While there’s no guaranteed way to identify such diamonds in the rough, an excellent place to start is by looking for companies with strong fundamentals and solid financial metrics.
Of course, not every company that fits this description will be a winner, and some will be cheap for a reason. That’s why it’s important to focus on companies with a good return on invested capital and other measures of profitability. Identifying these hidden gems can take time and effort, but it’s worth it if you wish to achieve superior returns.
And to give you a little headstart, here are three undervalued stocks that are primed to perform well throughout 2023.
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Huntsman Corporation (HUN)
Chemical products manufacturer Huntsman is currently executing an ambitious capital allocation plan that will see the business create a simplified portfolio with a net leverage ratio of around 0.7x.
To achieve this, the firm is seeking to sell its Textile division for an enterprise value of $718 million, after which the proceeds will be used to strengthen its strategic acquisition goals.
Ultimately, Huntsman wants to reward stakeholders with a sustainable dividend presently yielding 2.99%, as well as a stock repurchase scheme that’s targeted to buy back $1 billion’s worth of shares in 2022.
So far, things are going well. The company has reshaped its Polyurethanes wing so as to insulate it from the risk of volatile operations like the Commodity MDI business, while further investments have been made into high-margin, high-return projects such as HUN’s polyurethane catalysts and specialty amines.
Huntsman’s also engaged in an effort to generate upwards of 40% free cash flow conversion, with an insistence on expenditure and working capital management. The company has a return on common equity of 31% and would like to drive its EBITDA margin up to around 20% in 2022 and beyond.
Finally, with a PE ratio of 8.5x, the firm is trading at a historically low level today, suggesting the stock might not be this cheap for quite a while. Couple this with HUN’s detailed and purposeful commercial roadmap, and investors would be unwise to overlook this superb engineering venture.
The Chemours Company (CC)
The Chemours Company is a global leader in the production of advanced performance materials. The firm manufactures membranes, coatings and titanium technologies for businesses in the aerospace, construction and automotive industries.
Having been spun off in 2015, the company still benefits from the more than 200 years of experience that its parent operation, DuPont, has built up over that time.
Indeed, Chemours has managed to carve out a reputation for quality and innovation all of its own, with its products used in a wide range of applications such as air conditioning, refrigeration and water purification.
The firm’s share price has risen 33% recently after the company reported a strong revenue and profits beat in the third quarter of 2022. Its sales were up 6% at $1.8 billion, while net income of $240 million spiked earnings by $0.25 to bring in a total of $1.52 per share.
However, in Chemours’s latest financial update, the firm’s management posted revised full-year guidance that seemed to spook the market. The company now believes it is “tracking slightly below the low end” of its previous estimates, with demand for its portfolio of titanium products weakening in Europe and Asia due to an increasingly uncertain outlook.
Despite these inconvenient developments, the business remains on track to deliver significant value creation for its shareholders. CC has appreciable operating leverage due to its high variable margins, diverse revenue base, and strong global footprint. This allows it to maintain a fully integrated supply chain while also planning for a $200 million advance in innovation and capacity.
Moreover, the enterprise is highly adept at generating substantial amounts of free cash flow. For example, Chemours produced $543 million of FCF in 2021 and predicts it will return the majority of this year’s bounty to investors through dividend payments and share repurchases.
Given that its stock value has declined 17% in the past six months, CC’s forward price-to-cash flow ratio now stands at a very attractive 6.2x.
While near-term headwinds might present a few challenges for the firm, its long-term prospects are much more favorable. In fact, a key focus for Chemours from now on is the development of sustainable solutions that meet the needs of its customers while minimizing environmental impact.
In line with this goal, it has recently launched several new products made from renewable or recycled materials, while also working to reduce emissions from the business’s manufacturing processes. For instance, the firm is helping to power the green economy through its Nafion™ membranes, which are a core component in hydrogen fuel cells and electrolyzers.
With over 7,000 employees located in 120 countries around the world, Chemours is well-positioned to continue its leadership role in the chemicals marketplace for many years to come.
GSK plc (GSK)
British drugmaker GlaxoSmithKline saw its stock slip 20% this year.
While that’s just about in line with the wider market as a whole, it’s actually a poor return when judged against the overall Healthcare sector, which has done fairly well in 2022.
However, with such underwhelming share action right now, GSK is trading relatively cheap compared to its pharmaceutical peers.
Indeed, the company’s current price woes belie what is a well-oiled business with bags of further potential. For instance, GlaxoSmithKline’s revenue grew 9% in the third quarter to £7.8 billion, with the firm boasting a massive 33.3% adjusted operating margin. On top of that, GSK delivered exceptional results in its Specialty Medicines segment, which increased 36% year-on-year.
Crucially, the enterprise is also continuing to strengthen its late-stage R&D pipeline. There will be a phase III readout in the fourth quarter for the endometrial cancer drug Jemperli, while positive data has already been gathered showing a 94.1% reduction in severe respiratory syncytial virus disease for older adults treated with GSK’s novel vaccine candidate.
Furthermore, at a time when the industry is witnessing its median return on total assets fall by 31%, GSK has grown its own by almost 23%. This has undoubtedly encouraged the firm’s management to state that its operating profit will expand by between 15% and 17% this year, even excluding any impact from the company’s COVID-19 offerings.
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