As the pandemic fades into history, investors have rotated to undervalued stocks that could benefit from a reopening economy. It can be frustrating to see stocks of exciting companies you like not perform well, but there are some promising value plays you can buy today that could improve your returns.

Two companies that are seeing improving business trends are Mattel (MAT 0.26%) and Hanesbrands (HBI 1.75%). Both companies have been going through a turnaround over the last few years, but their recent results are showing promise. Most importantly, these stocks are really cheap, and Hanesbrands even offers an attractive dividend yield to boot. Here's what you need to know.

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In 2018, new CEO Ynon Kreiz promised to turn Mattel into an "IP-driven, high-performing toy company." After years of wrestling with declining sales and a bloated cost structure, Mattel is finally starting to show real progress in its turnaround. The stock is up 137% over the last year, but there is still a wide valuation gap between Mattel and rival Hasbro that could spell further gains over the next few years. 

Coming off a year where Mattel posted 2% sales growth and a noticeable improvement on the bottom line, the company again delivered its third straight quarter of market share gains in the first quarter. Net sales jumped 47% year over year in Q1 2021, benefiting from lower sales in the year-ago quarter at the start of the pandemic. Mattel saw balanced growth across all categories, including 86% growth in Barbie, 16% in Hot Wheels, and a 101% surge in action figure sales. 

Mattel is on the verge of hitting its stride under Kreiz's leadership. Improved operating efficiency has led to a noticeable improvement in free cash flow, which totaled $305 million over the last four quarters, up from just $72 million through Q1 2020. Mattel is targeting another $250 million in incremental cost savings by 2023, and given Kreiz's track record so far, investors can bank on that target. 

Mattel is gunning for the same opportunities as Hasbro in film, digital games, and e-commerce. Mattel has multiple feature film projects and TV series in development and is working with leading Chinese game company NetEase to license its intellectual property for digital games through its Mattel163 joint venture.

The stock trades at a significant discount to Hasbro on a price-to-sales basis. At current levels, Mattel trades at a 39% discount to its peer. As the company continues to improve its margin and growth profile, that valuation gap may also continue to narrow, which makes Mattel a compelling value stock to buy right now. 

MAT PS Ratio Chart

MAT PS Ratio data by YCharts


Hanesbrands is also going through a transformation to improve performance. While it is much further along in its journey than Mattel, the stock still offers tremendous long-term upside from its current share price.

The Champion brand has been a winner in recent years, with sales growing at a level that would make lululemon athletica jealous. Management sees further room for double-digit growth and is targeting $3 billion in annual revenue from Champion by the end of 2024. 

Meanwhile, the innerwear business, including Hanes and Maidenform, is starting to turn the corner. This segment saw sales slide 3% per year between 2017 through 2019, but innerwear posted a sales increase of 35% year over year in the first quarter.  

Altogether, management is calling for annualized sales growth of 6% through 2024. Shares of Hanesbrands dropped earlier in May after the Q1 earnings report, but as investors digest the ongoing improvements happening across the business, the stock could head higher. 

The stock is still cheap even after doubling in value over the last year. It trades at a forward price-to-earnings ratio of 12.1, along with an above-average dividend yield of 3.1%, which is supported by $502 million in free cash flow. If the company can achieve management's target of 9% annualized growth in adjusted earnings, the current price level may look like a bargain in hindsight.