Value stocks are poised for another strong year. The core reason is that companies with stable free cash flows, strong balance sheets, and an established competitive moat are better equipped to handle an economic downturn than businesses focused on growth at all costs.
Which value stocks are the most attractive buys right now? While there are dozens of tantalizing candidates, these five undervalued names stand apart from the crowd.
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1. Alibaba
Chinese e-commerce juggernaut Alibaba (BABA -0.97%) is a highly attractive value play right now. The company's shares have struggled over the past few years due to a laundry list of headwinds, such as country-specific political risks, declining margins, logistical and economic problems in China stemming from COVID-19, the rise of new competitors, and political tension between the U.S. and China.
With China lifting its zero-COVID policy last December, however, Alibaba's earnings power should start to normalize over the balance of 2023. To this point, the Chinese tech giant is forecast to grow its revenue by more than 18% over the next 24 months, according to analysts covering the stock. So, with Alibaba's shares trading at a near-industry-low 11.4 times forward earnings, value investors may want to consider buying into this intriguing turnaround story.
2. Alphabet
Internet search titan Alphabet (GOOG 0.25%) (GOOGL 0.19%) has shed nearly 7% of its value this month. Alphabet's stock has been under pressure of late due to competitive concerns over the launch of Microsoft's ChatGPT-powered Bing search engine.
And this recent weakness isn't entirely without merit. The tech industry, after all, is replete with numerous cautionary tales about market share upheaval following a single, game-changing innovation.
Alphabet isn't the next Blockbuster Video, however. The company is an entrenched competitor in the internet search arena, a free cash flow-generating machine, and a proven innovator across multiple platforms. It had over $113 billion in cash, cash equivalents, and marketable securites at the end of 2022. At under 21 times forward earnings, Alphabet stock is simply too cheap to ignore right now.
3. AT&T
The iconic telecom company AT&T (T -1.02%) is a table-pounding value stock to buy, according to Wall Street. Keeping with this theme, AT&T's stock might be undervalued by as much as 28% right now, per Morningstar analyst Michael Hodel, CFA.
The telecom company's shares appear to be significantly undervalued for few reasons. First, its ongoing pivot away from media/entertainment and back to its historical core area of expertise as a telecom company has been a winning play.
Underscoring this point, AT&T has been notching healthy levels of organic growth in both wireless and broadband services in recent quarters.
Second, this top telecom stock is currently trading in bargain territory at under 8 times forward earnings. Lastly, AT&T offers shareholders an annualized yield of 5.7%, which is an enormous payout for a large-cap stock.
4. Confluent
The data streaming specialist Confluent (CFLT 0.11%) stands out as an incredible bargain right now. The tech company's stock has fallen by a hefty 43% since its IPO in mid-2021, but this sharp pullback stands in stark contrast to its blistering growth trajectory.
Over the next two years, for instance, Wall Street expects Confluent's annual revenue to rise by a staggering 58%. What's more, Confluent's shares appear to be trading at approximately 5 times 2025 sales based on its projected growth rate over this period. That's a downright bargain for an innovative tech company.
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Confluent's platform allows users to analyze customer data in real time to increase operational efficiencies, enhance the customer experience, and expand into underpenetrated markets. It sports a star-studded client list across nearly every sector of the global economy.
Confluent's platform is thus becoming an integral part of the modern-day business landscape. Bargain hunters, in turn, shouldn't hesitate to buy this undervalued data streaming stock right now.
5. Icahn Enterprises
Icahn Enterprises (IEP -1.22%) is a highly prized passive income vehicle that's currently trading at a mere 1.2 times 12-month-trailing sales. The master limited partnership (MLP) operates through a variety of subsidiaries, with interests in finance, energy, automotive, food packaging, real estate, home fashion, and pharma. As an MLP, investors technically own "depository units" instead of stock shares, an issue which creates some unique challenges on the tax front.
On the finance side of the ledger, Icahn Enterprises often invests in undervalued companies and subsequently uses this ownership stake to influence managerial decisions to increase shareholder value. This aggressive approach to value creation is known as activist investing.
IEP Total Return Level data by YCharts
Thanks to its pretax distributions of nearly 15% per year, Icahn Enterprises' units have crushed the broader markets from a performance standpoint over the past 14 months. Given the company's rich tradition of increasing its quarterly distributions on a regular basis, and approximately $4.4 billion in liquidity at last count, Icahn Enterprises ought to have no trouble delivering top-notch returns for unit holders for the foreseeable future.
