3 value stocks with stratospheric returns

Even as S&P500 hit new highs, some investors are fleeing to value stocks as the best option for long-term growth. Growing concerns about investment concentration in growth indices are a cause for concern, such as the S&P 500’s increasing dependence on high-flying technology stocks such as NVIDIA (NASDAQ:NVDA) to keep the party going. This dependence is a double-edged sword; a few missteps by these companies could ruin your portfolio.

Today’s value stocks offer two key advantages: the best are broadly aligned with economic conditions, with relative undervaluation leading to massive upside potential as the winds change, and their inherent value characteristics help preserve capital, often leading to solid income and dividend opportunities.

These value stocks combine these strengths and thus represent one of the best strategies for diversifying risk compared to the dominant stocks that largely determine the performance of your portfolio.

Polaris (PII)

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Attention off-road and adventure fans! Polaris (NYSE:PII) is one of those value stocks that may have suffered in recent months due to higher interest rates and weaker economic performance, but will now improve its market position due to a realignment of forces.

Polaris makes a range of off-road vehicles, including ATVs, side-by-sides and even snowmobiles. Sales soared in the midst of the pandemic as cheap credit made financing easier and abundant free time during lockdowns forced outdoor recreation. That all changed, of course, and revenue dropped dramatically between 2022 and the end of 2023 as tariff increases took full effect.

However, Polaris is in for a rebound that will set it apart from other value stocks, as improved consumer sentiment and easing inflation increase the likelihood of rate cuts. Industry experts are already expecting a solid 8% compound annual growth rate for the broader off-road recreation segment through 2032. Polaris is also undeniably dominant in this category and enjoys a brand position well above the competition that ultimately sets the company up for solid rebound in the years to come.

Titan Machinery (TITN)

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Small-cap stocks in agriculture and construction equipment Titan Machines (NASDAQ:TIT) may not enjoy the broad recognition of industry giants such as Deere & Co (NYSE:EN), but its strong fundamentals are hard to ignore. Titan Machinery’s latest quarterly report beat analysts’ expectations, showing a 10% year-over-year increase in revenue, although net income fell, largely due to challenges such as rising supply chain and fuel costs. But as with value stocks like Polaris, an improving economic outlook bodes well for a quick turnaround for Titan.

Considering its potential upside, Titan Machinery is undeniably undervalued, trading at just 0.12 times sales, 3.66 times earnings, and 0.52 times book value. Such drastic undervaluation is especially stark considering the company has posted 79% annual earnings growth over the past three years, even accounting for recent declines. For the rest of the year, Titan’s conservative guidance calls for single-digit earnings projections for all operating segments and a slight decline in year-end earnings. If Titan beats these modest forecasts, however, the stock could quickly reverse its recent downward trend. Either way, Titan’s low costs among value stocks make it an undeniable solid investment at these prices.

Steelcase (SCS)

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Manufacturer of high-quality office furniture Steel housing (NYSE:SCS) is benefiting from the same economic tailwinds that are boosting the other value stocks on the list, but has the added benefit of benefiting from the general work-from-home trend that is creating new market opportunities.

After pandemic-related setbacks, Steelcase quickly regained its financial stability. The company’s latest quarterly report showed net income of $10.9 million, nearly ten times higher than the previous year, further evidence that economic conditions are improving in Steelcase’s favor. In addition, stable revenues of around $3.2 billion over the past two years underscore Steelcase’s ability to maintain strong margins without compromising on quality.

To capitalize on the ongoing shift to remote work, Steelcase is targeting 4-6% annual revenue growth and a 5% free cash flow margin as a percentage of revenue over the next five years. The company has also significantly reduced its debt, improving liquidity and reducing interest costs in the current high-yield environment. These strategic initiatives position Steelcase as a top player among high-quality value stocks in the market today.

As of the date of publication, Jeremy Flint held no positions in any securities mentioned. 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 responsible editor had neither directly nor
indirectly) positions in the securities mentioned in this article.