Is now the time to go all in? Major indexes like the Nasdaq 100 and S&P 500 soared after a very positive November PPI report that indicated that producer prices have reduced. This and the dovish Federal Reserve suggest the end of interest rate hikes and a rate cut of up to 75 basis points by next year. This has energized the market, pushing the Dow Jones Index to reach record peaks and multimonth highs for both the S&P 500 and the Nasdaq 100.
This positive change in the market narrative may be the best time to pick up quality companies trading at attractive price levels before the shoot back up. In fact, if you're wondering if we are in a bull market, we are close! By many definitions, the S&P 500 will return to a “bull market” once it closes above its record high of 4796.56.
Research shows the S&P 500 rises 92% of the time over 12 months following the start of a bull market.
Based on analyst ratings and earnings forecasts, this article will look at 3 undervalued companies with high potential returns.
LyondellBasell Industries N.V. (LYB)
LyondellBasell Industries N.V. is a chemical company that is the largest licensor of polypropylene and polyethylene technologies. It operates in three main segments: Refining for its crowd oil and high-sulfur crude oil refinement; Advanced Polymer Solutions for its plastics, plastic compounds, and composite; Intermediates and Derivatives for oxyfuels and ethylene glycol; O&P-EAI segment that markets olefins, polypropylene, and polyethylene.
LYB has continuously emphasized its focus on its core business. It recently announced the sale of some of its business to INEOS and acquired a minority stake in Source One. LYB is also making good with its green initiatives. The company has already reached 78% of its target to acquire half of its electricity consumption via renewable means. Financials are also looking up; EPS has exceeded analyst expectations for several quarters, and its latest announcement showed an earnings beat of 24.24%. Quarterly EBITDA ended strong at $1.356 billion, jumping from $1.108 billion YoY.
Analyst Ratings
Analysts have been steadily raising their outlook on LYB, with the latest ratings showing a ”Moderate Buy” based on 5 Strong Buys, 1 Moderate Buy, 9 Holds, and 1 Strong Sell. The mean estimate is $101.31, and the high target price is $110.00, an upside of 16.28%.
BorgWarner Inc. (BWA)
BorgWarner Inc. is a hybrid, combustion, and electric vehicles technology solutions company that manufactures and sells products to OEMs (original equipment manufacturers) of light vehicles. Its operations fall into three main segments: Epropulsion for its electronic components; Drivetrain & battery systems for its battery management systems and various vehicle management products; and Air management segment for its boosters and turbos.
BorgWarner has been making strategic acquisitions and partnerships. This includes taking over Eldor Corporation’s Electric Hybrid Systems business segment, increasing business with premium European OEMs, providing bi-directional 800-volt onboard chargers to North American OEMs, and supplying high-voltage coolant heaters to global OEMs. Financially, the company has performed well, beating analyst expectations for two straight quarters. Net sales were also up 12% YoY, and the company is confident that overall organic sales will increase by 12 to 14% by the end of the year.
Analyst Ratings
Analysts rate BWA as a “Moderate Buy” based on 9 Strong Buys, 1 Moderate Buy, and 4 Holds. The mean target for BWA is $46.36, and the high target is $59.00, an upside of 64.67%. With the continued adoption of ESG and climate change initiatives, the company is in a great position to capitalize on the market’s requirement for technological solutions for electric vehicles.
Bunge Global SA (BG)
Bunge Global SA is an agricultural and food industry company based in Switzerland that is the holding company of Bunge Group, which is focused on food and fuel delivery for products worldwide. Bunge's main operations involve the processing and sale of agricultural products, as well as the storage of oilseeds and the sale of grains and proteins. The company has been focused on producing custom-made solutions that fit various dietary needs globally.
BG recently acquired Viterra to expand its global agricultural business position. The company also expanded its export capacity through its joint venture with EGT. It also released its new product, Beleaf™ PlantBetter, a plant-based butter alternative. Bunge’s strategic initiatives have paid off, leading it to beat analyst expectations for two quarters. Though EPS saw a slight dip YoY, the company is still confident in ending the year strong, as it raised its full-year guidance to $12.50.
Analyst Ratings
Analysts rate BG as a “Strong Buy” based on 6 Strong Buys and 2 Hold recommendations from analysts. Its mean target price is $131.44, and the high target price is pegged at $161.00, an upside of 52.88%. This solid potential return and earnings momentum makes a compelling stance for buying BG.
Final Thoughts
The change in the market outlook presents investors with the potential to buy into undervalued stocks that have marked a short-term low. With attractive valuations, these stocks offer a high potential for returns. However, investors and traders should never forget to conduct their due diligence to make informed decisions when choosing stocks to invest in.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
