- The Federal Reserve’s dovish pivot this week has helped spark an ‘everything rally’ on Wall Street.
- Optimism that the Fed is done hiking rates and will shift to cuts next year will continue to buoy sentiment.
- As such, here are five undervalued stocks worth buying amid the current backdrop.
- Looking for more actionable trade ideas to navigate the current market volatility? Members of InvestingPro get exclusive ideas and guidance to navigate any climate. Learn More »
- Year-To-Date Performance: +1.2%
- Market Cap: $36.5 Billion
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- Market Cap: $34.2 Billion
- Year-To-Date Performance: +40.2%
- Market Cap: $11.1 Billion
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- Market Cap: $10.9 Billion
- Year-To-Date Performance: -4.1%
- Market Cap: $8.4 Billion
U.S. stocks are poised to end 2023 on a high note amid investor optimism that the historic tightening of monetary policy is likely over, and interest rates will fall next year following a dovish pivot by the Federal Reserve.
To no one's surprise, the Fed funds rate was left unchanged at a range of 5.25%-5.50% earlier this week. However, new FOMC dot-plot forecasts showed three rate cuts in 2024 as inflation fell faster than expected.
Speaking at the post-meeting news conference, Fed chair Jerome Powell acknowledged that more rate hikes are unlikely and the time for rate cuts is drawing closer.
The dovish pivot sparked a massive rally on Wall Street. The blue-chip Dow Jones Industrial Average hit its first record closing high since January 2022, rising above the 37,000 level for the first time in history.
The S&P 500 could soon join the Dow in record territory, as the benchmark index is less than 2% away from reaching its all-time close set in January of 2022. The tech-heavy Nasdaq Composite currently stands about 8% away from its closing record.
Taking that into account, here are five compelling options worth considering as investors eye undervalued stocks that could thrive as the Fed pivots to easing monetary policy in 2024.
1. Las Vegas Sands
Las Vegas Sands (NYSE:LVS) is a global leader in integrated resorts, operating iconic properties such as The Marina Bay Sands in Singapore and The Venetian and The Parisian in Macau. The tourism and hospitality giant has redirected its focus toward Asia following the sale of its Las Vegas properties earlier this year.
Positioned prominently in the leisure and entertainment sector, Las Vegas Sands, whose operations span casino gaming, hotel accommodations, entertainment, and convention facilities, is poised to gain from increased consumer discretionary spending amid lower interest rates and receding inflation fears.
After an upbeat start to the year, the global casino and resort leader has come under heavy selling pressure in recent weeks, which saw it wipe out nearly all its gains for the year. With just about two weeks left in 2023, shares are up just 1.2% year-to-date and are roughly 25% below their recent peak of $65.78 reached in late September.
Source: InvestingPro
LVS stock ended Thursday’s session at $48.65, after falling to a 2023 low of $43.77 in early October. Las Vegas Sands has a market cap of $36.5 billion at its current valuation, making it the largest resort and casino company in the world, ahead of MGM Resorts (NYSE:MGM), Caesars (NASDAQ:CZR) Entertainment, and Wynn Resorts (NASDAQ:WYNN).
The present valuation of LVS stock suggests it's a bargain, as per the InvestingPro model. There's potential for a 27.7% surge from yesterday's close, aligning it with its 'Fair Value' estimated at $62.07 per share.
Moreover, Wall Street remains optimistic on the company, as per an Investing.com survey, which revealed that 14 analysts have a buy-equivalent rating on the stock vs. two hold-equivalent ratings and no sell-equivalent ratings.
2. Interactive Brokers
Interactive Brokers (NASDAQ:IBKR) is a technology-driven brokerage firm offering a wide range of trading and investment services. Its platform caters to both individual and institutional clients, providing access to global markets, various asset classes, and advanced trading tools.
As the Fed leans toward cutting rates in 2024, the potential for continued market volatility could play to the strengths of Interactive Brokers' platform, attracting more investors seeking active trading opportunities. It operates the largest electronic trading platform in the United States by number of daily average revenue trades.
As InvestingPro points out, Interactive Brokers currently enjoys a ‘Financial Health’ score of 4/5, thanks to strong earnings prospects, and a healthy profitability outlook. The Greenwich, Connecticut-based financial services firm stands to benefit from increased market activity and trading volumes in a lower interest rate environment as the Fed signals a dovish outlook.
Source: InvestingPro
IBKR stock - which is up 12.4% year-to-date - ended at $81.33 on Thursday. At current valuations, Interactive Brokers has a market cap of $34.2 billion.
It should be noted that shares are trading at a bargain valuation, as indicated by the InvestingPro model. There's a possibility of a 48.2% increase from last night’s closing price, moving it closer to its 'Fair Value' set at $120.54 per share.
Furthermore, nine out of ten analysts surveyed by Investing.com have a ‘buy’ rating on Interactive Broker’s stock, reflecting a bullish recommendation.
3. Open Text
Open Text (NASDAQ:OTEX) specializes in enterprise information management, offering innovative software and services that facilitate document management, collaboration, and workflow optimization. The Ontario, Canada-based company’s expertise lies in assisting enterprises to navigate and leverage their vast pools of data effectively.
Positioned to cater to businesses seeking cost-effective data management solutions, Open Text stands to benefit from increased enterprise demand in a more accommodative economic environment.
As InvestingPro points out, Open Text is in great financial health condition, thanks to strong earnings and revenue growth prospects, combined with its attractive valuation. Additionally, it should be noted that the company has raised its dividend payout for ten years running.
Source: InvestingPro
Open Text has been on a major uptrend throughout most of the year, with shares climbing roughly 40% in 2023. The stock - which began trading at $29.85 on January 3 - ended at $41.59 yesterday, the highest closing price since August 1.
Even with the recent upswing, OTEX remains undervalued and could see an increase of 23.2%, according to InvestingPro, bringing shares closer to their ‘Fair Value’ of $51.25.
In addition, Wall Street has a long-term bullish view on the enterprise information management software company, with all 12 analysts surveyed by Investing.com rating OTEX stock as either a ‘buy’ or a ‘hold’.
4. Endeavor Group
Endeavor Group (NYSE:EDR) operates as a diversified entertainment and talent agency. Its portfolio includes assets in sports, entertainment events, media production, and talent representation. The Beverly Hills-based company is a majority owner of World Wrestling Entertainment (WWE) and Ultimate Fighting Championship (UFC) through TKO Group (NYSE:TKO).
Endeavor is well-positioned to benefit from a resurgence in live events, media activities, and talent-driven content creation as the economy potentially receives a boost from looser monetary policies.
With its array of assets spanning entertainment, sports, and talent representation, Endeavor is poised to capture growth opportunities arising from increased consumer and advertiser spending.
Source: InvestingPro
Shares have enjoyed a powerful rebound since sinking to a near-record low of $17.65 in mid-October, running about 32% higher in the past six weeks. Despite the recent rally, EDR stock, which ended at $23.30 last night, remains roughly 34% below the January 2022 all-time high of $35.28.
As per the InvestingPro model, EDR stock is currently priced at a substantial discount. There's potential for a 35.2% increase from Thursday's closing price, bringing it towards its 'Fair Value' of $31.51 per share.
In addition, Wall Street remains optimistic about the talent and media agency, as per an Investing.com survey, which revealed that 12 out of 13 analysts covering the stock rated it as a ‘buy’.
5. Tapestry
Tapestry (NYSE:TPR) is the parent company of renowned luxury brands Coach, Kate Spade, and Stuart Weitzman. Additionally, through its recent acquisition of Capri Holdings (NYSE:CPRI), it owns Versace, Jimmy Choo, and Michael Kors.
Operating in the luxury retail segment, Tapestry designs, manufactures, and markets high-end accessories and lifestyle products. In an environment where consumers might have more disposable income due to lower interest rates, Tapestry could benefit from increased spending on luxury goods.
The company's diversified brand portfolio positions it well to capitalize on shifting consumer preferences in a more favorable economic landscape. That should allow the luxury fashion firm to grow its earnings and improve gross profit margins.
Demonstrating the strength and resilience of its business, Tapestry sports a near-perfect Investing Pro ‘Financial Health’ score of 4 out of 5 and has raised its dividend for three years in a row.
Source: InvestingPro
After starting the year at $39.38, Tapestry’s stock tumbled rapidly to a low of $25.99 on November 1, which was the weakest level since November 2020. Shares have since clawed back some losses, ending at $36.51 on Thursday. At current levels, the New York City-based luxury fashion company has a market cap of $8.4 billion.
Currently trading at a bargain according to several valuation models on InvestingPro, Tapestry’s stock presents an affordable opportunity for investors seeking exposure to the luxury goods sector. The ‘Fair Value’ price target for TPR stands at about $46.50, a potential upside of 27.3% from the current market value.
Moreover, according to the survey conducted by Investing.com among 23 analysts, the consensus on Tapestry remains largely bullish, with 15 suggesting either a 'buy' or 'hold' for the stock.
With InvestingPro's stock screener, investors can filter through a vast universe of stocks based on specific criteria and parameters to identify cheap stocks with strong potential upside.
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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK). I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.