With the stock market fluctuating frequently due to the current geopolitical crisis, Maxim Manturov, Head of Investment Advice at Freedom Finance Europe, explores seven undervalued stocks investors can consider to diversity their market portfolios.
If your investment objective is to generate above-market returns, there are trade-offs and certain risks that will need to be taken. A portfolio should combine all types of assets, from dividend stocks for stable income generation to undervalued securities with potential for high gains.
Undervalued stocks are securities whose real value, according to reports from financial experts, is higher than the market value. They should objectively be worth more and it makes sense for investors looking to raise capital to add stocks of a few such companies to their portfolios.
A portfolio of stocks from undervalued companies
Investing in undervalued companies carries risks. For conservative investors, it is sufficient to partially add such assets to a portfolio. Those expecting the highest possible returns can build an aggressive growth portfolio for themselves. With this in mind, we have selected 7 companies whose shares are currently undervalued.
Advanced Micro Devices (AMD)
On 14 February 2022, AMD completed its acquisition of Xilinx, which could boost the company’s earnings and free cash flow. A second acquisition took place on 4th April 2022, when AMD acquired Pensando, which will accelerate AMD’s presence in the cloud, enterprise, and peripheral applications market.
Further acquisitions will drive AMD’s revenue growth, and it is likely that investors will underestimate AMD’s revenue and profit potential. New product launches during 2022 are also likely to resonate with existing customers and attract new ones, in turn boosting its value.
Astra Space (ASTR)
Astra Space is a private US space company. In November 2021, its Astra 0007 rocket took off from Kodiak and reached orbit. The market welcomed this with a 42% rise in the share price, so one can imagine what impact future successful launches will have.
Astra Space has many launches planned for 2022 and plans to move from the ‘test’ phase to ‘commercialisation’. Revenue is predicted to rise by the end of the year. The company has a net cash position that is estimated to last another 2 years, making it attractive to investors.
It can be argued that the Covid-19 pandemic is beginning to subside, but the future is difficult to predict. Moderna believes that the virus is moving towards an endemic phase and humanity will simply have to live with it. Any development will still require the use of vaccines. Moderna already expects major orders for Spikevax in 2022 and beyond in 2023.
Moderna has a total of 44 programmes in the works. The most prominent of these will be a flu vaccine and an HIV vaccine. Successful developments will flush the issuer’s shares upwards.
The GitLab platform is at the heart of writing the code IT needs to build the next generation of leading applications. It’s critical software that can continue to grow despite an inflationary market. The target market opportunity for GitLab in the DevOps market is around £32bn ($40bn).
Rivian Automotive (RIVN)
Rivian produced 2553 electric vehicles in the first quarter of 2022 and plans to ramp up production by the end of the year. Their partnership with Amazon provides a competitive advantage as it guarantees the firm’s steady cash flow and increases confidence in the brand.
Rivian is trading at a low valuation of just 5.3x their future order book sales, so the only major obstacle to the firm’s success is the current supply chain disruption.
Sibanye Stillwater Limited (SBSW)
Those wishing to hedge against fiat currency volatility could look to platinum. The metal remains at 2016 levels due to weakness in global vehicle production, but threats to Russian exports or renewed demand from investors could end the surplus.
Sibanye shares have an extremely low valuation compared to the market and peers. Their dividend yield is 8%. The company also has a strong cash position, and good debt levels and has plans to reduce capital expenditure in the coming years.
The company overextended itself financially, prioritised growth over profitability and stability, and was close to collapse. But WeWork has an interesting product that has proved surprisingly resilient in the post-pandemic period.
The current capitalisation of around £3.5bn ($4.4bn) offers upside potential. If at some point, the company manages to achieve >90% utilisation, the stock could rise several times its current price.
Undervalued stocks are an opportunity to earn several times more than the market average on securities. But that outlook involves high risk, so you should protect yourself against losses by diversifying. And more importantly, you should study to better understand the characteristics of different sectors and their impact on companies.