I believe some of the names on my best stocks to buy list now are currently undervalued. The pandemic and market crash paved the way for many stocks to lose value. With the market stuttering today, there could be even more value opportunities around for my portfolio.
I believe some are still undervalued and there are some exciting opportunities to pick up cheap shares for the long term. Investing in undervalued stocks is not a new practise. In fact, legendary investor Warren Buffett is one of the most famous value investors of our time.
I have pinpointed three undervalued shares I would happily add to my portfolio at current levels.
FTSE 100 broadcaster
ITV (LSE:ITV) shares are trading for 110p as I write. A year ago shares were trading for 95p, which is a 15% return. At current levels, shares are trading at a price-to-earnings ratio of just 12, which I think is seriously undervalued.
ITV suffered due to the pandemic but has also been on a downward trajectory for some years. A rise in digital disruptors and competitors ate away at ITV’s previously dominant market share. A recent shift towards digital transformation has prompted a comeback of sorts for ITV. I believe ITV could be an excellent recovery play in the long term.
ITV’s Q3 update released to the market earlier this month noted impressive performance for the nine months in its fiscal year to date. Revenue easily surpassed 2020 pandemic levels by 28% but, more impressively, it surpassed 2019 pre-pandemic levels. The digital transformation seems to be working with online viewing numbers up by 39% too.
The best stocks to buy now do have risks too despite what seems like cheap valuations. ITV is in a highly competitive market. The race for new viewers and the best content is spread among more traditional names like BBC and ITV as well as popular so-called newer platforms like Amazon Prime, Netflix and Apple TV to name a few.
ITV is still one of the largest media companies in the UK. It holds 13 of the 15 regional TV licenses and is cheap currently. It has a dividend yield of close to 4%, which is over the FTSE 100 average of 3%. I would buy shares for my portfolio today.
Aerospace giant
Defence, security, and aviation is a very large and lucrative sector to be in, especially when you take into account the various geopolitical factors around the world. BAE Systems (LSE:BA) is one of the biggest players in the market so I am quite surprised and buoyed to see it undervalued at current levels. BAE has a presence and operations in over 80 countries, most notably in the UK, US, Saudi Arabia, and Australia.
At the time of writing on Friday, shares are trading for 546p whereas a year prior, shares were trading for 504p, which is a 8% return. BAE has a price-to-earnings ratio of just over 10, which I believe is cheap for such a quality stock.
I believe BAE has defensive traits as governments worldwide spend handsomely on defence, which is where BAE comes in. BAE has a multi-billion dollar order book that goes all the way to 2030! BAE is also a good dividend payer and has a dividend yield of over 4%. Like ITV, BAE’s current yield is above the FTSE 100 average of 3%.
My best stocks to buy now usually have a consistent track record of performance too. I understand past performance is not a guarantee of the future but I use it as a gauge when reviewing investment viability. Revenue and gross profit have increased year on year for the past three years. A recent update provided by the company was also promising.
BAE Systems also comes with risks. The primary risk is that in times of economic austerity or pressure, defence spending can often be one of the first items to be cut by governments. Due to the pandemic and other macroeconomic pressures currently, BAE could experience some challenges of this nature.
Overall I would buy BAE Systems shares for my portfolio at current levels. It pays a good dividend, has defensive traits, a positive track record, has a good forward looking order book, and continues to win new business. Furthermore, it continues to acquire smaller businesses to enhance its offering.
The best stocks to buy now make me a passive income
Imperial Brands (LSE:IMB) is a leading supplier of tobacco, cigarettes, and other smoking-related products. Some of its brands include Davidoff, Winston, and West.
It is worth noting that smoking firms don’t have the best reputation at times. This is because smoking has fallen foul of changing consumer habits. This outlook has been more prevalent in developed countries. In less developed countries, smoking is actually on the rise. In addition, the rise of environmental, social, and corporate governance (ESG) investing means firms like Imperial are out of favour for some investors.
At the time of writing, shares are trading for 1,553p, whereas a year ago shares were trading for 1,413p, a 9% return. At current levels, Imperial’s price-to-earnings ratio stands at just over five, which is extremely cheap in my eyes.
Imperial has a juicy dividend yield of 9% and is one of the go-to stocks for passive income seekers. With a current cheap price and a high dividend yield, there is a lot for me to like.
Imperial also has real risks. Investor sentiment issues have hampered it but performance has not really been affected in the past nor has it affected its attractive dividend yield. When the pandemic struck, it did have to cut dividends to conserve cash. With risks of new variants and restrictions, like those recently reported, there is a credible chance this could happen once more. Finally, if demand in more developed countries continues to decrease, performance and payouts could be affected.
I believe Imperial is one of the best stocks to buy now as a passive income investment for my portfolio and I would add cheap shares to my portfolio at current levels.
This post was originally published on Motley Fool
