The current bull market continues to show unprecedented resilience. Already the longest in U.S. history, it is set to turn 11 in March. While there are no major signs currently that a recession is imminent, it would be wise for investors to think about becoming increasingly conservative and cautious when it comes to selecting equities for investment. This could lead to a shift from expensive momentum plays to value and overlooked opportunities. Here are three companies that are currently showing undervalued metrics that look like good buys.
JinkoSolar (JKS -4.28%) is among the world's largest manufacturers of solar modules. The company's products offer renewable energy technology to global utilities, as well as commercial and residential clients. Based out of China, JinkoSolar has roughly 2,000 customers across over 100 countries. In 2018, JinkoSolar delivered a total of 11.4 gigawatts (GW) worth of solar modules.
The solar module manufacturer has seen strong progress in 2019. In late October, JinkoSolar announced that it supplied 13.6 megawatts (MW) worth of modules to Photon Energy Solutions in Hungary. The solar modules are being used for the development of 19 solar power plants.
In September 2019, JinkoSolar announced winning a contract to supply 300 MW of its "ultra-high efficiency Cheetah modules" for a massive solar power plant to be installed in Talavan, Caceres, Spain. The project continues to build credibility for one of the world's largest solar module suppliers.
As the outlook for solar energy continues to look bright, JinkoSolar Holdings looks to be quite undervalued with a price-to-earnings-growth ratio (PEG) of 0.47, a price-to-sales ratio (P/S) of 0.16, and a price-to-book ratio (P/B) of 0.49.
PEG is calculated by taking a price-to-earnings ratio and dividing it by the company's earnings growth rate over a particular period. A PEG value greater than 1 is considered to be overvalued, while a reading of under 1 suggests an undervalued state. JinkoSolar's current PEG ratio is showing a 53% discount as of this writing.
The P/S ratio is determined by dividing a company's market cap by its total revenue over the past year. With a P/S of only 0.16, JinkoSolar is trading at a steeper discount to its sales than major peers Canadian Solar (P/S ratio of 0.32) and SunPower Corporation (P/S ratio of 0.73).
The P/B ratio is found by taking the stock price and dividing it by its book value per share. Book value is calculated by subtracting a company's total liabilities by its total assets. JinkoSolar's P/B ratio is trading at a compelling 51% discount. However, when comparing it to Canadian Solar (P/B ratio of 0.81) and Sunpower (negative P/B ratio), its ratio looks even more enticing and undervalued.
These valuation metrics serve as a signal for investors to take a look at the company.
KEMET (KEM) is a manufacturer of electrical components, which are key to ensuring that products like computers, consumer electronics, and other related items, operate correctly and efficiently. Part of the industry's growth can be attributed to the development and implementation of advanced technologies like 5G networks and electric vehicles, as well as continued growth in internet use.
Founded in 1919, KEMET maintains a global footprint of 23 manufacturing facilities across 11 countries. During the company's fiscal year ending in March 2019, KEMET supplied 54 billion electrical components.
Over the past four quarters, KEMET has beaten earnings estimates and as a result of its strong earnings performance, analysts are jumping on the bandwagon. Three months ago, KEMET had no analyst rating. Currently, the company has four analyst ratings, all with a "buy."
The company trades at a significant discount to the overall market, which is noted by its price-to-earnings ratio of 6.04, compared to the S&P 500's P/E ratio of around 22.55. KEMET also trades at a 50% discount to its earnings growth and a 10% discount to its sales. This can be seen with its PEG of 0.5 and P/S of 0.9. KEMET also has very impressive profitability ratios: return on equity (ROE) of 35.8%, return on investment (ROI) of 25.7%, and return on assets of 16.4%. https://finviz.com/quote.ashx?t=KEM&ty=c&p=d&b=1
These figures indicate that KEMET is undervalued and overlooked. The market is apparently not taking into account major growth sources on the horizon: electric vehicles, 5G, renewable energy, Internet of Things, and more. Did you know that the average Tesla vehicle requires around 10,000 electric capacitors? Apple's new iPhone X utilizes 1,000 electric capacitors. This highlights the major demand for electrical components, particularly as new and advanced technologies continue to gain steam.
NETGEAR (NTGR -0.92%) recently reported third-quarter 2019 earnings results. On the bright side, third-quarter earnings beat estimates, but revenues came in lower than expected. On a year-over-year basis, both earnings and revenues saw declines.
The company reported $265.9 million in net revenue (down 1.3% year-over-year) and GAAP net income per diluted share of $0.39 (down $0.10 year-over-year).
The communication equipment company saw its results dragged down by declines experienced outside of the United States. Luckily, NETGEAR did see net revenue from the Americas region -- which accounts for 67% of total revenue -- increase 1.6% on a year-over-year basis. Lack of performance in Asia and Europe was largely attributed to macroeconomic and geopolitical events, such as the effects of the trade war, Hong Kong protests, and more. In the earnings release, management noted plans to decrease its sales exposure and employment force in China and Europe due to the effects of the trade war.
The company could also see a boost as the United States is positioning to upgrade to the next generation of Wi-Fi connectivity, Wi-Fi 6, in the coming months. With NETGEAR holding 51% market share of United States retail Wi-Fi connectivity products, this could prove to be a strong catalyst for the company.
As NETGEAR looks to position for the launch of Wi-Fi 6 and decrease its exposure to adverse macro environments, value investors may be interested in this technology company, which is currently trading with an undervalued PEG ratio of 0.29 and P/S ratio of 0.94.
When comparing NETGEAR's valuation to two of its most notable competitors, Broadcom and Cisco Systems), NETGEAR is very undervalued. Both competitors have PE potential. Broadcom and Cisco Systems are even more overvalued when comparing their price-to-sales ratios, which are again both greater than 2. NETGEAR's leading market share and undervalued state compared to its key competitors make it an interesting value play for 2020.