Value investors may be looking at a good year in 2022. With the Federal Reserve implementing a series of rate hikes meant to tame rising inflation, the stock market is anticipating a choppy year, at best. That means investor caution and a shift away from fast-rising growth stocks that have dazzled market watchers since the crash of 2020.
But how does an investor find the best investments in the big value stock universe? The secret for many experienced stock traders lies in just two letters: P and E.
Finding Value in the Market
There are many different ways to value a company. One of the most familiar to stock traders is the price-to-earnings ratio, also known as P/E. This is the ratio of a stock’s price to the company’s earnings.
At the start of 2022, the following seven stocks had P/E ratios near the bottom of the scale. Not coincidentally, they also had low price-to-sales ratios, which measure price against revenue, and low price-to-book ratios, which measure the price of the stock compared to the net book value of the company.
That makes these undervalued stocks interesting investments, but it’s crucial to remember that there’s often a solid reason that a stock is cheap. The company may carry a lot of debt on its balance sheet; its industry may be in decline or out of favor (coal, tobacco); or it may operate in troubled and unstable areas of the world.
7 Undervalued Stocks To Consider Right Now
It’s smart to look behind the numbers and get well informed on the current state of any business you invest in. While the following companies passed a screen for high value, consider the list an introduction to some inexpensive stocks and not a recommendation to buy shares.
1. ACCO Brands Corp. (ACCO)
- Market Capitalization: $434.54 million
- EPS Growth Y/Y: 42.18%
- Trailing P/E: 3.94
- Price/Sales: 0.21
- Price/Book: 0.50
There’s nothing quite as dull as office supplies, but boring-yet-profitable can mean real excitement when you own shares. Headquartered in Illinois, ACCO makes a wide variety of school and office products under several different brand names, including Swingline, Wilson Jones, Five Star and Kensington.
Buyers find ACCO’s products through retail stores, online stores, warehouse clubs and office supply outlets such as Staples and Office Depot. The company also has an e-commerce platform and a direct sales group. The shares trade at a P/E of 3.94 and pay a dividend yield of 3.75%, while full-year revenue grew over 22% from 2020 to 2021.
2. Eagle Bulk Shipping Inc. (EGLE)
- Market Cap: $673.34 million
- EPS Growth Y/Y: 3,268.81%
- Trailing P/E: 2.15
- Price/Sales: 0.90
- Price/Book: 0.88
Headquartered in Stamford, Connecticut, Eagle Bulk Shipping ships dry bulk cargo, such as coal, ore, grain, fertilizer and steel, worldwide via vessels it owns or charters. The company’s astounding EPS growth of over 3,200% in just one year could be a one-time surge — or it could signal an excellent opportunity for investors. Analysts side with the latter, calling the stock a strong buy with an average price target of $69.30. As of mid-afternoon on Oct. 13, shares were trading at $49.10.
3. China Petroleum & Chemical Corp. (SNP)
- Market Cap: $72.17 billion
- EPS Growth Y/Y: -20.83%
- Trailing P/E: 6.52
- Price/Sales: 0.16
- Price/Book: 0.63
China Petroleum & Chemical Corp. is a chemicals and energy resources producer in the People’s Republic. It owns and operates service stations, pipelines, refineries, chemical plants, storage facilities, drilling sites and coal facilities.
Both geopolitical risk and emphasis on environmental, social and governance, or ESG, investing make the shares generally unpopular — and makes SNP a deep value play. The essential resources and services provided by this company ensure a reliable stream of revenues, and the rapidly expanding economy in China ensures the steady growth of the company’s vast market among businesses and individual consumers. The stock trades at a P/E multiple of 6.52 and a price-to-sales ratio of 0.16.
4. Honda Motor Co. (HMC)
- Market Cap: $37.29 billion
- EPS Growth Y/Y: -33.63%
- P/E: 8.67
- Price/Sales: 0.37
- Price/Book: 0.49
Honda, like other automakers, has had a tough ride over the last couple of years due to pandemic-related chip shortages and increasing material and labor costs. Although serious challenges remain, including a disappointing first quarter of Honda’s 2023 fiscal year, things might be starting to turn around for Honda. In its most recent earnings release, Honda increased its operating profit projection and announced it would buy back shares amounting to as much as 100 billion yen.
In the meantime, shares are trading at just 8.67 times earnings, contributing to Honda’s “strong buy” rating from analysts.
5. Beazer Homes USA Inc. (BZH)
- Market Cap: $319.15 million
- EPS Growth Y/Y: 83.89%
- P/E: 1.75
- Price/Sales: 0.15
- Price/Book: 0.37
Headquartered in Atlanta, Beazer Homes USA builds throughout the South and in the western states of California, Arizona and Nevada. The company raises single-family and multifamily residential properties and has benefited from positive trends in the real estate sector.
Amid rising interest rates, however, the stock market sees a cloudy future for Beazer and other builders if the housing market cools off. Beazer’s low price-to-sales of 0.15 and P/E of 1.75 reveal a lack of enthusiasm from the market. Value investors in search of a bargain, however, may want to have a look while considering the demand for housing of all kinds in the fast-growing regions the company serves. Zacks Equity Research says the stock is still trading at a discount, and the consensus rating among analysts polled by Yahoo Finance is “buy.”
6. Ternium S.A. (TX)
- Market Cap: $5.57 billion
- EPS Growth Y/Y: 59.21%
- P/E: 1.51
- Price/Sales: 0.32
- Price/Book: 0.48
Ternium is a Luxembourg-based conglomerate with steel factory and mining subsidiaries in the United States and throughout Latin America. It sells and distributes steel beams, tubes, bars and rods, as well as roofing and decks, pre-engineered building components, pig iron and iron ore.
Steel and metal fabrication is a hard-fought and cyclical business, resulting in a relatively low valuation for Ternium and its competitors. The company’s trailing P/E hovers below 2, and analysts polled by Yahoo Finance, which calls the stock undervalued, rate it a “buy.” Value investors seeking to diversify their holdings outside of the United States may also find a steady Europe-based business of interest.
7. M/I Homes Inc. (MHO)
- Market Cap: $1.11 billion
- EPS Growth Y/Y: 26.42%
- P/E: 2.57
- Price/Sales: 0.29
- Price/Book: 0.61
M/I Homes is a single-family homebuilder with a presence in 16 markets in Texas and several states in the Midwestern and Eastern U.S. Despite high demand for homes, the residential construction industry has faced serious challenges since the pandemic began. However, M/I is holding its own, with a low P/E, an upward trend in its stock price and new quarter records for revenue and net income.
The company is also flush with cash. It announced in February that it would add $100 million to its existing $100 million stock repurchase program.
Good To Know
If you’re not inclined to research a lot of individual companies, just buy into an index fund. These funds simply track the performance of all stocks in an index such as the S&P 500 or the Russell 2000 index of small-capitalization stocks. Investing in an index fund ensures that you’ll never underperform the market.
FAQUndervalued stocks can tempt investors to buy shares before they've done their homework. The answers to these frequently asked questions can help you avoid making the same mistake.
- How do I find undervalued stocks?
- Several different metrics offer clues as to whether a stock is undervalued. A common one is a low price-to-earnings ratio compared to the ratios of companies in the same industry. A low price-to-sales ratio and price-to-book ratio also suggest a stock is undervalued. You can find these ratios for a particular stock by looking up the stock quote on a financial website such as Yahoo Finance or Investing.com.
- Do undervalued stocks always go up?
- All stocks are risky, and there's never a guarantee that undervalued shares will go up.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Oct. 13, 2022, and is subject to change.