The 3 Most Undervalued Value Stocks to Buy in July 2024

There are no hard and fast rules for what constitutes a value stock. It is more about the feel. Well, it’s a little more than that. You can think what you want about a company and say it’s an undervalued value stock. But if a company’s fundamentals don’t line up, then you’re not investing. You’re gambling. You might as well be throwing darts at a dartboard.

However, there is a better way. Look for stocks that are performing well relative to the market in terms of price, free cash flow (FCF) and earnings growth potential. They will show that despite the market downgrading its value, the company still has the means to come back strong.

I was looking for stocks that were below the price of the S&P500 Price-to-earnings ratio of 29. But they should also have low FCF multiples. This means that after paying their bills, the companies still have money available to invest back into the business. I also want them to have high earnings growth potential. This should indicate companies with good expansion opportunities.

However, you’ll probably have to look at some ugly stock price charts. These undervalued value stocks might look like they’ve already played a round or two with Mike Tyson in his prime. But don’t be put off. Hold your nose and dive into the three heavily discounted stocks below.

Target (TGT)

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Discount retailers Goal (NYSE:TGT) is the sixth-largest retailer in the country. Not being at the top of the list means there is significant competitive pressure from the companies above it. After recovering from missteps a decade ago, the mass retailer reinvested in its business to build an efficient operation that resonated with consumers. In particular, its digital initiatives, which came to the forefront during the pandemic, proved Target could keep up with major rivals. Walmart (NYSE:WMT) And Amazon (NASDAQ:Amazon).

But its biggest drawback is that Target must constantly drive cost savings, whether in stores, fulfillment, or supply chain. Because Target doesn’t stand out in terms of size, price, or product differentiation, the company must continually improve its cost structure. Fortunately, the retailer is a money-making machine.

Target generated $3.8 billion in FCF last year and grew that to $4.6 billion over the trailing 12-month period. TGT stock trades at 14 times FCF and 16 times earnings. The stock will be flat in 2024, but with Wall Street expecting the retailer to grow earnings 18% annually, the retailer is poised to grow and experience multiple expansion. Target stock is an undervalued value stock that should be on your buy list.

Nextracker (NXT)

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Spin-off from a specialist in electronics manufacturing To bend (NASDAQ:TO BEND) in 2023, Next rascal (NASDAQ:NXT) hasn’t done too badly in its battle with Tyson. The stock is up 65% since the split, but is only up 9.3% this year. Since it’s still trading at a cheap price, it’s worth considering buying this undervalued value stock.

Nextracker is the world’s largest manufacturer of intelligent tracking systems on a gigawatt basis (GW) in the US and worldwide. Solar panels produce 25 to 35 percent more energy by following the sun’s path across the sky than stationary panels. Nextracker offers these utility-scale solar trackers.

Unlike residential solar, large-scale projects are not as hard hit by high interest rates, although they are not immune. Nevertheless, revenue in the fiscal fourth quarter rose 42% year over year and profits exploded from 2 cents per share to $1.51 per share.

Despite the strong performance, Nextracker stock remains undervalued, trading at 15 times earnings and 16 times free cash flow. However, analysts expect Solartracker stock to grow earnings by a staggering 40% annually over the next five years, making this an undervalued value stock to buy today.

Brinker International (EAT)

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On the surface, Brinker International (NYSE:EAT) doesn’t seem to fit the mold of undervalued value stocks. Shares are up 51% year to date and 71% in the past year. These are growth stocks, and by a huge amount, since Brinker is a restaurant chain that owns Chili’s and Maggiano’s Little Italy.

And yet it still offers significant value to investors. It’s an example of a company that has outperformed its valuation, and that bodes well for investors. If you buy now, you can benefit from future appreciation.

Brinker International is capitalizing on the love of Mexican food. His Chili’s chain is a moneymaker for the restaurant owner, as his Tex-Mex flavors conquer both the wallets and the stomachs of diners. The brand’s sales rose 3.8 percent to $988 million in the third quarter, representing 89 percent of total sales.

Brinker did this by offering a combination of innovative menu design and value, which resulted in the restaurant operator exceeding its sales and traffic, surpassing the industry average.

Although it trades at 19 times earnings, it trades for a fraction of its revenue and is below its long-term earnings growth rate of 20%. While it trades at a slightly elevated price-to-free cash flow ratio of 19, as a fast-growing chain, Brinker International still offers investors great value and is an undervalued Vale stock.

At the time of publication, Rich Duprey did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.

At the time of publication, the editor in charge did not hold any positions (either directly or indirectly) in the securities mentioned in this article.