Top Undervalued Stocks Right Now

L Brands, Inc. [NYSE: LB] is an American fashion retailer whose flagship brands include Victoria’s Secret, PINK and Bath & Body Works among others.

The Columbus, Ohio based-company sells women’s intimate and other apparel, personal care and beauty products, apparel and accessories online and through 3,000 company-owned specialty stores in the United States, Canada, the United Kingdom, Ireland and Greater China.

Turnaround in Victoria’s Secret fortunes can boost L Brands

It has been a turbulent year for L Brands [NYSE:LB] as its shares have slid and underperformed, losing over 40% of their market value. Revenue from Victoria’s Secret and other brands seems to be declining at an alarming rate.

Bath & Body Works brand is growing revenue by double digits though the overwhelming underperformance of Victoria’s Secret continues to pull down the company. L Brands reported a decline both in revenue and operating income in Q3. Its revenue was down 3.5% annually to $2.68 billion and its net income tumbled by 87% to $5.7 million or $0.02 per share.

In order to stem the rot and bring back shoppers, L Brands has taken the discount route. This can arrest the revenue slide to an extent, but this along with ongoing store closures is bound to squeeze the margins.

John Mehas was appointed Victoria’s Secret’s new CEO in late 2018.  Tory Burch as former president since then has tried out a number of initiatives to resuscitate the brand. Under Mehas, the company strengthened its e-commerce platform, started using RIFD tags, and brought back swimwear. Unfortunately, all the hard work so far has failed to control the hemorrhaging.

L Brands may have to do away with Victoria’s Secret altogether or source cash from Bath & Body Works to keep Victoria’s Secret afloat till things a take a turn for the better for the lingerie company.

Lethargic mall traffic and stiff competition from smaller brands along with a number of controversies that the brand has courted in recent times have further added to its woes.

L Brands’ stock is cheap and the reasons for it are many.  Bath & Body Works is helping fund Victoria’s Secret’s losses, whose EBITDA is in free fall. Nonetheless, L Brands remains committed to improving Victoria’s Secret’s performance.

The company has entered 19 markets and continues to grow in China, which could put it on a path to profitability. The stock’s trading for 6.7 times next year’s earnings estimates and a turnaround in Victoria’s Secret’s fortunes could lead the stock prices to soar.

Analysts’ 12-month forecast for L Brands’ stock range from $14.00 to $60.00. On an average, they anticipate L Brands’ share price to reach $24.40 in the next year, an upswing of around 37%, making it a good investment option.

If we apply Ben Graham’s formula, the upside for L Brands is 50.8%.

Appointment of Jide Zeitlin as new CEO raises optimism for Tapestry

Tapestry, Inc. [NYSE: TPR] formerly Coach, Inc., is an American multinational fashion house of luxury accessories and lifestyle collections.

The company’s portfolio includes the Coach, Kate Spade and Stuart Weitzman brands. The Tapestry product portfolio includes handbags, footwear, wallets, watches, key-chains, sunglasses, jewelry, fragrance, backpacks, belts, key rings, address books, etc., which are made using leather, fabrics and materials.

Founded in 1941, the New York City-based Coach bought Kate Spade in 2017 in a $2.4 billion deal. Additionally, luxury shoe brand Stuart Weitzman was purchased by Coach in 2015 for $574 million.

The jury is still out on whether Coach’s move to acquire the two brands was a wise move. The reason for it is not hard to decipher as Coach by far is the largest contributor of Tapestry, generating in excess of $4 billion in sale for the company.

Profitability started to decline for Tapestry post the acquisition, which enhanced the revenue but could not push the profits. Tapestry’s stocks is down 27% over the past three years.

However, the decline cannot be attributed to the acquisitions of Kate Spade and Stuart Weitzman alone. Overall, the retail industry is in a mess with dismaying news galore of bankruptcies and thousands of store closures.

Despite all the signs of gloom, Tapestry is not without its share of optimism. The appointment of its chairman of the board, Jide Zeitlin, as the new CEO was widely hailed and witnessed a wave of optimism, with the stocks rallying more than 20%. Investors are hopeful that Zeitlin’s long stint at the company as well as his experience on Wall Street could help him turn around the company’s sagging fortunes.

The company is also known for its high dividend yield, having distributed around 75% of its cash flow as dividends in fiscal 2019.

Also, the stock trades at a cheap valuation of 9 times forward earnings estimates. Analysts’ 12-month forecasts range from $22.00 to $52.00. On an average, they expect Tapestry’s share price to reach $31.16 in the next one year, suggesting an upswing of over 22%. If Zeitlin manages to fulfill the expectations and get the company back on track, investors are likely to have a gala time.

If we apply Ben Graham’s formula, the upside for Tapestry is 41.9%.

Sino-US Trade Talks Will Help Ethan Allen Interiors

Ethan Allen Interiors Inc. [NYSE: ETH] is an American furniture chain which designs, manufactures, distributes and sells a broad range of  furniture products, decorative accents, home furnishings and accessories across the United States, Canada, Europe, Asia, and the Middle East. The company operates through two segments: Wholesale and Retail.

The company offers a variety of products such as beds, home office furniture, tables, chairs, lighting, clocks, pillows, sofas, rugs, recliners, decorative accents, mattresses, bedspreads, etc. through ethanallen.com and its network of more than 300 stores across the globe. The Danbury, Connecticut-based company went public in 1993.

Ethan Allen [NYSE: ETH] was trading higher despite faltering sales and lower than expected revenue. The interior designer company  generated $173.92 million for the quarter, down 7.4% on a year-over-year basis. Sales fell off 7.4%, hit primarily by lower than expected sales in Canada and China. Economic uncertainty and a tariff war saw sales tumble by more than 35% in China.

However, despite all the uncertainty, Ethan Allen shares have risen 12% since the beginning of the year. It is expected that the stocks are going to perform well as the trade war with China eases.

A discounted cash flow forecast shows an upswing potential of almost 10% on shares of Ethan Allen.

If we apply Ben Graham’s formula, the upside for Ethan Allen is 29.6%.

Kontoor Brands remains a lucrative investment prospect

Kontoor Brands [NYSE: KTB], formerly a part of VF Corporation, is a global lifestyle apparel company.

Kontoor, which designs, manufactures, markets, and distributes denim, apparel, and accessories, has a portfolio of iconic brands such as Wrangler, Lee, Rock & Republic in its kitty. Kontoor Brands was spun-off from the VF Corporations Jeanswear Company into a publicly traded company in 2018. Kontoor Brands Inc. is based in Greensboro, United States.

Kontoor Brands’ [NYSE: KTB] latest quarterly earnings failed to show a rosy picture. Revenues stood at $638 million during the quarter, down 9.4% on a year-over-year basis. Two factors were primarily responsible for the revenue slide.

First, the company decided to withdraw from certain channels in India, as part of its initiative to exit from unprofitable points of distribution.

The second factor was the bankruptcy of Sears in 2018 which contributed to US sales slipping by 9% year over year. Both its iconic Wrangler and Lee brands recorded decline in sales. Revenues from global markets slid 11%, courtesy the company’s decision to exit certain channels in India and other countries.

Sales in China picked up, which helped offset the slump elsewhere to a certain extent.

Revenue slump notwithstanding, analysts are optimistic about the long-term prospects of the company. With a history of secure dividend and stable cash-flow generation, Kontoor has cemented its position as a slow-growth, high-yield dividend stock. The company’s quarterly dividend of $0.56 per share represents a dividend yield of 5.57%. While Kontoor’s third-quarter results lacked luster, it still remains a lucrative investment opportunity for investors.

If we apply Ben Graham’s formula, the upside for Kontoor Brands is 24.5%.

Investment in US by General Motors to ease investors’ concerns

General Motors [NYSE: GM] is an American multinational corporation that designs, manufactures, markets, and sells cars, trucks, crossovers, and automobile parts the world over. It also provides automotive financing services through General Motors Financial Company, Inc.

The Detroit-based company, whose iconic brands include Buick, Cadillac, Chevrolet, GMC, Holden, etc., is America’s largest automobile manufacturer as well as one of the world’s largest.

General Motors [NYSE: GM] has earned $35.50 billion during the quarter, down 8% compared to the same quarter last year. The revenue slump should not come as a surprise as it has been a turbulent 2019 for the auto manufacturer.

The hullabaloo generated by the threat of tariff imposition on Mexican imports spooked investors. GM’s exposure to Mexico (around 30% of the company’s imports come from Mexico) makes it more vulnerable as compared to its rivals. The United Auto Workers’ strike also took a toll on the company’s performance.

However, with the strike resolved and GM announcing $1.5 billion investment in the country to build up its U.S. manufacturing base, 2020 promises to be a good year for the car maker.

With an annualized dividend yield of over 4% and the stocks trading at around six times earnings and 1.1 times its booking value, investors are in for a likely windfall with the stock.

The stocks currently enjoy a strong ‘buy’ rating with analysts on an average estimating General Motors’ stock price to reach $47.25 in the next 12-months, an upside of around 27% from its current price.

If we apply Ben Graham’s formula, the upside for General Motors is 25.5%.

Bed Bath & Beyond hopes to recover post dismissal of senior executives

Bed Bath & Beyond Inc. [NASDAQ: BBBY] is an American chain of domestic merchandise retail stores. The company, through its nationwide chain of retail stores and various websites, sells a wide assortment of domestic merchandise and home furnishings, including  bed linens, bath items, kitchen items and textiles, basic housewares, health and beauty care items, food, giftware, tabletop items, fine tabletop, general home furnishings, and infant and toddler merchandise, among others.

The company was founded by Warren Eisenberg and Leonard Feinstein in 1971 and is headquartered in Union, NJ.

Bed Bath & Beyond [NASDAQ:BBBY] generated $2.72 billion for the quarter, down 7.3% compared to the same period last year. However, analysts have been bullish on the company, hoping that latest moves by its CEO Mark Tritton can turnaround the fortunes of the beleaguered retailer.

BBBY got a thumbs-up from both Merrill Lynch and Loop Capital following Tritton’s decision to trim the management suite. The dismissal of six senior executives they believe could simplify Bed Bath & Beyond’s decision-making process and help arrest declining revenues, shrinking profitability and sinking stock value.

Experts believe that there is a strong market for Bed Bath & Beyond’s products. Cutting down on stores, prudent dealing of debt and streamlined decision making can help the company get back on its feet. Merrill Lynch raised its price target on Bed Bath & Beyond stock to $24, the optimism stemming from the fact that all these measures will enable Bed Bath & Beyond resume growth.

The company, with its transformation plan, is well on its path to meeting the next quarter’s consensus EPS of $1.47 per share, from the dismal $0.34 it reported in the current quarter. The company’s stocks are expected to surge, which makes it the right time to invest.

If we apply Ben Graham’s formula, the upside for Bed Bath & Beyond is 20.7%.

H&R Block a good prospect with healthy cash flows and expanding customer base

H&R Block, Inc. [NYSE: HRB] is an American tax preparation company which, through its subsidiaries, provides tax preparation and other services primarily in the United States, Canada, Australia and India.

Having more than 12,000 retail offices worldwide and operated directly by the company or by franchisees, the Kansas City–based company also offers consumer tax software as well as online tax preparation and payroll, and business consulting services.

H&R Block, Inc. [NYSE: HRB] earned $161 million during the quarter, an upside of 8.1% on a year-over-year basis despite investing heavily in technology and operations.

The tax industry continues to grow and the introduction of tax laws such as Tax Cuts and Jobs Act (the law that reduced the corporate tax rate and made several other changes to the tax code) keeps the business’ prospects bright.

The company is in a proactive mode, focusing on competitive pricing, product innovation and enhanced user experience. Healthy cash flows give tax consultants the room to invest in innovative ideas to expand their customer base and enhance their revenue.

Analysts expect H & R Block’s stock price to reach $26.75 in the next year, an upswing of more than 14%, making it a good investment option.

If we apply Ben Graham’s formula, the upside for H&R Block is 15.8%.

United Kingdom Homebuilder Redrow Roars Back

Redrow plc [LON: RDW] is one of the largest housebuilders in the United Kingdom. The company, with a network of 15 operational divisions across the UK, acquires land and develops residential housing properties. Redrow is engaged in constructing homes throughout England and Wales with primary focus on traditional family housings.

The company founded in 1974 is headquartered in Flintshire, the United Kingdom. It is listed on the London Stock Exchange. The shares of the housebuilder have recently started to show signs of recovery as BREXIT concerns dissipate.

Redrow profits continued even as the negativity surrounding Brexit continued to haunt the housing market. Its pretax profit jumped around 7% to 406 million pounds ($494.2 million) for the quarter ended June 30, 2019 primarily driven by the new homes market.

The economic and political fallout of the decision to exit the European Union has left the sector clueless, with the central bank claiming that the “disorderly” Brexit scenario could lead to house prices tanking by over 30 percent.

However, despite all the chaos, the probability of the Bank of England jumping in to support has buoyed investors’ sentiments. The fact that construction and housebuilding are likely to be the primary gainers of the government’s largesse augurs well for the company.

Liberum Capital has a “buy” rating on the stock. Likewise, UBS Group, Canaccord Genuity, Berenberg Bank and Shore Capital have reaffirmed a “buy” rating on the shares of Redrow. Analysts’ one-year target prices for Redrow’s stocks have set a median target of 704.00, with a high estimate of 820.00 and a low estimate of 510.00.

With valuations dragged down by the Brexit vote, and dividend yields among the highest in the FTSE 350, Redrow looks an attractive investment opportunity for income investors prepared to take the risk.

If we apply Ben Graham’s formula, the upside for Redrow is 32.6%.

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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.