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These 2 Under-the-Radar Stocks Are Great Buys Right Now

By Keith Noonan - Dec 31, 2020 at 8:00AM

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The market is overlooking the potential of these companies. It's time to take advantage.

The last year has been defined by a barrage of challenges and uncertainty, but the stock market has actually posted remarkably strong performance across the stretch. Despite a record-setting drop in March, the S&P 500 index rebounded and is currently up more than 15% year to date.

With the broader market posting eye-catching gains while major risk factors are still on the horizon, it's become harder to find great deals on stocks. But there are still overlooked investment opportunities on the table that trade at substantial discounts and have the potential to deliver for investors.

Read on for a look at two under-the-radar stocks that look primed to deliver strong performance in 2021 and beyond. 

A person holding a lightbulb.

Image source: Getty Images.

1. Zuora: The subscription economy is poised for huge growth

Broadly speaking, 2020 was a great year to own software stocks. Social distancing created by the coronavirus pandemic meant businesses shifted more of their operations to digital channels, and consumers did more of their shopping and socializing online as well. However, not every promising cloud software stock benefited from virus-related momentum. 

Zuora ( ZUO 6.17% ) provides software-as-a-service (SaaS) solutions for subscription-based billing, accounting, analytics, and more. The stickiness of high-quality subscription businesses has been at the heart of stock market success stories including Netflix and Microsoft, and strong performance for SaaS stocks at large may have had the effect of raising expectations for Zuora. Unfortunately, enterprises are usually reluctant to shift to new software platforms when there's a lot of uncertainty on the horizon, and that's meant slower growth this year. 

Zuora's sales still climbed roughly 8% year over year in the third quarter, but it has suffered relatively sluggish performance due to the pandemic. Guidance for revenue to climb roughly 2% for the full year admittedly looks paltry in the age of high-growth cloud software stocks, so it's not a huge shock that the stock hasn't participated in the SaaS rally. On the other hand, the rise of the subscription model is still just getting started, and Zuora is in a great position to capitalize.

The overall subscription economy looks poised for huge growth, and demand for fintech solutions in the category will likely rise dramatically over the next decade. With the company valued at roughly $1.7 billion and trading at 5.5 times this year's expected sales, investors can still purchase Zuora stock at levels that look very cheap in the context of its potential. 

2. HanesBrands: Attractive valuation and growth opportunities

With much of the excitement in the stock market centering around high-growth technology plays that have seen tailwinds from the pandemic, it's not surprising that HanesBrands ( HBI 0.52% ) isn't generating much fervor. Yes, the company's Champion athleisure brand has attracted some attention in recent years, but this is still a clothing company that has underwhelmed the market over the last half-decade.

Even recent comments from the company's management team could be used to support the narrative that HanesBrands is a dinosaur poorly positioned to deliver substantial returns. New CEO Stephen Bratspies has stated that the company will conduct a thorough review of the business and move resources away from some of its aging brands.

HanesBrands' recent stock performance reflects the fact that the company has challenges to overcome and is far from a market darling, but investors willing to bet on the company's solid foundations and promising turnaround initiatives could be rewarded.

The stock is down roughly 2% year to date, 18% from its 52-week high, and roughly 50% over the last five years. On the other hand, this is a company that's trading at attractive levels and offers appealing upside for patient investors. The stock is now priced at roughly 11 times this year's expected earnings and 0.8 times expected sales, and shares sport a hefty 4.1% dividend yield. 

While a resurgence for the Champion brand is far from being a secret at this point, the brand's potential to be a long-term growth driver is still underappreciated. Under the guidance of Bratspies, the company is also pursuing accelerated initiatives to improve its tech platform and bolster e-commerce and direct-to-consumer sales channels.

HanesBrands might not be the most exciting stock under the sun, but this is a good company with underappreciated strengths, and the combination of a strong dividend yield and attractive capital appreciation potential shouldn't be overlooked.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Zuora Stock Quote
Zuora
ZUO
$19.97 (6.17%) $1.16
Hanesbrands Inc. Stock Quote
Hanesbrands Inc.
HBI
$17.40 (0.52%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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