The major stock market indexes are near record highs. Speculative fever is running hot, in particular, with things such as meme stocks taking flight recently.
That’s all well and good, but some investors are understandably cautious given the ebullient market conditions. Oftentimes, these sorts of big rallies end in a major stock market correction.
The good news, however, is that investors can still put money to work in today’s market without taking excessive risk. There are a number of great cheap value stocks on sale today. All seven of these top-value picks are five-star stocks according to Morningstar (NASDAQ:MORN) analysts, indicating they are compelling bargains that could be set to soar in the coming months.
The logo for Endava (DAVA) displayed on an office building.
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Endava (NYSE:DAVA) is an information technology outsourcing company. Specifically, its business model is to hire highly qualified IT professionals in lower-cost-of-living countries, such as Poland, Colombia and India; it utilizes those workers to carry out IT services for major multinational companies.
This model had been highly successful for Endava, and DAVA stock shot up from $25 in 2018 to a peak of more than $160 during the pandemic. However, the 2021-era boom in digital services and e-commerce has waned, and Endava shares have utterly collapsed as revenue growth trailed off. Now, DAVA stock has fallen back to near its 2018 price levels.
Some of this concern is understandable. Endava’s customer base is skewed toward the payments, financial services and banking sectors. These end clients have pulled back spending amid an unfavorable macroeconomic outlook, which includes higher interest rates, banking sector jitters and slowing digital payments activity.
However, DAVA stock’s plunge seems way overdone. Management has noted that most of its customers are still planning to grow their spending with Endava over the longer term and the current spending slowdown is a pause, not a structural change. Endava also just made a large acquisition to expand its position in the healthcare vertical and diversify away from the financials space.
These factors should power revenues over the next year. In addition, Endava appears to be a winner from generative AI, as Endava can help large and sometimes stodgy companies implement cutting-edge technology solutions into their existing workflows. Morningstar’s Rob Hales believes DAVA stock is worth $62/share, implying a 103% upside from today’s stock price.
Albemarle (ALB)
Graphic of Lithium scientific symbol (Li) in the shape of a big white gear with construction equipment and mountain around it. favorite Lithium stocks
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Albemarle (NYSE:ALB) is one of the world’s leading lithium and specialty chemical companies. Headquartered in North Carolina, it has operations spanning the U.S., Chile and Australia.
ALB stock has lost more than a third of its value over the past 12 months, and it’s down by more than half since its 2022 peak. While Albemarle is an industry leader with an impressive operating scale, it has not been able to escape the broader lithium industry bust.
The problems have largely arisen from weakness in the Chinese battery market. A shortfall in demand and excess inventories led to a dramatic decline in orders.
Beyond political jitters, the collapse in the lithium market has terrified investors. Chinese lithium futures contracts have slumped more than 75% since their 2022 peak. It should be noted, however, that prices are only back to 2021 levels; the surge in 2022 was unprecedented and probably unsustainable.
There’s no doubt lithium prices will continue to be volatile. Albemarle’s earnings will be sharply lower in 2024 as it deals with currently unfavorable market conditions. But for longer-term believers in the electric vehicle market, Albemarle appears to be a deep value, with shares trading down at their current levels.
Ambev (ABEV)
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Ambev (NYSE:ABEV) is Brazil’s brewing giant. The company is a subsidiary of Anheuser-Busch InBev (NYSE:BUD), operating its business in South American countries such as Brazil and Argentina.
Investors may be nervous about Ambev, given its parent company. However, these companies have different philosophies. Ambev maintains a net cash balance, a stark contrast to Anheuser-Busch’s heavily debt-driven approach. Ambev has also largely avoided the social and political controversies that tripped up Bud Light and other brands in North America.
In addition, unique threats to beer consumption in the North American market — such as craft beer, marijuana displacing beer or GLP-1 drugs decreasing beer consumption — are less prominent in South America.
ABEV stock has gotten hammered over the past year as the Brazilian economic rebound has lost some steam. However, for a debt-free high-margin beer business, ABEV stock is a steal at just 12 times forward earnings.
Pfizer (PFE)
blue Pfizer logo on the windows of a corporate building PFR stock
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Remember when COVID-19 vaccines were one of the biggest news stories in the world? Back then, Pfizer (NYSE:PFE) stock was riding high, as investors counted the billions of dollars of revenues pouring in.
That enthusiasm has long since ended. PFE stock was trading around $40 prior to the pandemic, it soared to a high of $60 in 2021 but has now slumped to just $28 per share.
On the one hand, that’s understandable. The demand for COVID-19 vaccines has largely dried up. Pfizer’s revenues plunged from $100 billion in 2022 to $58 billion in 2023. However, investors should note that in 2019, the company only brought in $51 billion.
In other words, Pfizer is still a far larger and more profitable business today than it was prior to the pandemic. Pfizer has reinvested its windfall into its drug pipeline. Recent earnings were also better than expected.
Analysts expect Pfizer to return to positive revenue growth in 2024, and shares go for just 12 times forward earnings. PFE stock also yields 5.9%.
Yum China (YUMC)
A banner for Yum China (YUMC) decorates the New York Stock Exchange.
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Yum China (NYSE:YUMC) is a tasty value stock right now. For investors wanting to take part in the Chinese economic recovery, Yum China is a lower-risk way to express that bet.
That’s because Yum China should not be overly tied to the economy or political developments. It is the Chinese franchisor for fast food brands including KFC, Taco Bell and Pizza Hut. Geopolitical challenges should have less impact on the fast-food market as compared to say real estate, e-commerce or technology firms.
That’s reflected in the company’s earnings. While there’s no doubt that Chinese consumers are in a spending slowdown right now, Yum China is still delivering the goods. The company’s earnings per share easily topped expectations and solidly increased year-over-year.
For the full year 2024, analysts expect 6% revenue growth and 9% earnings per share growth, with both those figures jumping to double-digit growth in 2025 as the Chinese economy recovers. Those growth rates pair nicely with the firm’s starting 18 times forward P/E ratio.
Realty Income (O)
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Realty Income (NYSE:O) is a triple net lease REIT, a type of rental arrangement where the tenants — rather than the landlord — pay for key expenses such as maintenance and utilities. The arrangement has served Realty Income well during the recent inflationary period, as it is sheltered from some rising costs that have plagued other landlords.
Realty Income’s property mix should also work well with current economic conditions. It leases buildings to everyday retail clients, such as pharmacies, along with industrial tenants. The company also wisely divested its office holdings a few years ago before the bottom dropped out of that market.
Regardless, Realty Income shares have gotten slammed in recent years. Investors are afraid of higher interest rates, a weakening economy and potential cracks in the commercial real estate market.
These factors have caused O stock to plunge far below fair value. Morningstar’s Kevin Brown believes the stock is worth $76/share today, whereas O stock currently trades for $55 per share. Brown is a fan of the company’s strong balance sheet and accretive M&A activities, among other factors. With the plunge in the share price, O stock now yields 5.61%.
Global Payments (GPN)
Global Payments office building in Brantford, Ontario, Canada. GPN stock.
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Global Payments (NYSE:GPN) is a leading payments company primarily focused on the merchant acquirer space. It provides the hardware, such as payments terminals, to retail establishments and then supports that with software covering accounting, risk management, fraud detection, tax compliance and so on.
The company came into its present form following a massive merger with Total System Services. The move made Global Payments a leading player in the industry and scaled up operations just in time for the pandemic-driven e-commerce boom. The firm’s broad product offering, such as helping merchants accept digital wallets, proved just right for the moment.
But after a gold rush in 2020 and 2021, industry momentum went into reverse. Now payments stocks are out of favor, and valuations have slumped to rock bottom levels across the industry. Specifically, analysts now see the company trading at less than 10 times forward earnings, and earnings are continuing to rise despite the industry’s current volatility.
I’m not the only one seeing deep value in GPN stock today. Morningstar’s Brett Horn believes shares are worth $179 each versus today’s $109 stock price.
On the date of publication, Ian Bezek held a long position in GPN, ABEV and DAVA stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.