The broader indices like the S&P 500 are turning lower and the loom of a recession nears, the Fed attempts its soft landing. Therefore, it’s more important than ever for investors to concentrate their holdings on undervalued stocks with strong fundamentals.
Specifically, undervalued and otherwise speculative companies may be the first on the chopping block to be sold. On the positive side, taking a contrarian position in one’s portfolio may lead to strong gains.
So with this context in mind, let’s examine three undervalued stocks with strong fundamentals to buy this month.
CVS Health (CVS)
CVS Health (NYSE:CVS) has an integrated healthcare model, capitalizing on the growing demand for healthcare services.
This year, it’s going to introduce CVS CostVantage, a new pharmacy reimbursement. It will more closely align pharmacy reimbursements with the quality of services provided.
In light of this and the continued demand for its products, CVS Health reiterated its guidance. They expect total revenues between $351.5 to $357.3 billion, operating income of $13.6 to $14 billion, and adjusted operating income between $17.2 to $17.6 billion for FY2023.
There could also be more in store for FY2024. The company forecasts total revenues of at least $366 billion and operating income of at least $15 billion. Also, they see adjusted operating income of at least $17.2 billion.
The undervalued nature of CVS stock is perhaps best expressed via its P/E ratio, which is just 11.14 times earnings. This is higher than its forward measure of 8.6 times earnings, which suggests the company may be comparatively undervalued.
Bank of America (BAC)
Bank of America (NYSE:BAC) continues to dominate the U.S. retail deposit market. The stock is undervalued due to the cyclical, expected, and inevitable wobbles of the financial sector. And this caused the bank to report mixed fourth-quarter financial results. Notably, the bank saw a 10% year-over-year (YOY) decline in quarterly revenue.
Also, BAC’s shares have taken a 10.14% hit over the past year. This may underscore the belief that the financial sector could be a fertile one for a rebound.
Bank of America is carefully optimistic this year, describing it as “The Year of the Landing.” Its research anticipates a continuation of disinflation, allowing central banks, including the Federal Reserve and European Central Bank, to initiate rate cuts in the second half of the year beginning in June.
Analysts collectively opine that BAC’s EPS will increase by 7.94% to 3.44, up from 3.19. But, a turn is expected sometime around FY2026, when its EPS is anticipated to reach 3.94. For patient investors who can ride out the short-term headwinds, BAC’s stock price of $33.04 makes for an attractive entry for this blue-chip dividend stock.
AT&T (NYSE:T) is a battered dividend stock with substantial debt. However, its shares may be poised for a rebound.
There have been some significant improvements in its financial performance that make me believe that it’s undervalued. Namely, it reported adding 1.7 million new customers and focusing on expanding its wireless and fiber services.
Looking ahead to FY2024, AT&T aims to continue this momentum. They plan to increase wireless service revenue by approximately 3% and broadband revenue by at least 7%. Furthermore, the company projects its free cash flow to be between $17 billion and $18 billion
Wall Street predicts that its stock price will increase 14.54% within the next twelve months, with its EPS surging by a dramatic 28.18% to 2.51.
Although the company has some issues with its debt load, the upside potential is too good to ignore, which then makes it one of those undervalued stocks with strong fundamentals for investors to consider.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.