Although a handful of stocks get a lot of attention for being overvalued, just as many aren't receiving enough attention. These stocks also look like bargain buys to me, and I think investors should take a look and see if one in this trio is a fit for their portfolios.
Let's look at a few undervalued stocks with the potential for a bull run. With all three of these stocks, the idea isn't to make a quick buck and get out; it's to invest over the long term, which is where the value of this trio begins to reveal itself.
1. Taiwan Semiconductor
Taiwan Semiconductor (TSM 3.37%) is the world's largest contract chip manufacturer. Because it gets designs from customers like Apple, it doesn't need to worry about marketing its capabilities as it is one of the few foundries in the world that can produce 3nm (nanometer) chips. However, it is captive to the ups and downs of the semiconductor industry and the cyclicality that flows from the roller-coaster of consumer demand.
Because of that, owning TSMC for the long term is the only way to go. With its 3nm processes just coming up to speed, there's a significant business chunk that hasn't been realized as revenue, giving Taiwan Semiconductor a substantial upside. Even though revenue fell during the first quarter by 4.8% in U.S. dollars (but rose 3.6% in New Taiwan dollars), Wall Street analysts expect the company to rebound next year, growing revenue by over 22%.
Despite this predicted upside ahead, the stock trades at 18 times forward earnings (which prices in TSMC's falling earnings), well below where it has traded for most of the past decade.
TSM P/E Ratio data by YCharts.
Because of its vast potential and great price, Taiwan Semiconductor is primed for a bull run -- and the stock already got a nice boost this past week after Nvidia reported its latest results. This is a stock you'll want to commit to owning for the long term to realize its full potential.
2. Adobe
Few software companies are more integrated into business operating systems than Adobe's (ADBE -0.70%) product line. With software that edits and creates PDFs, digital media, and other creative design products, Adobe is required for nearly every business.
Additionally, with its subscription business model, its clients are held captive to whatever price increases it wants to impart on them. This came to fruition in Q1 of fiscal 2023 (ended March 3), with revenue rising 9% year over year to $4.66 billion. However, some investors are shunning Adobe thanks to its latest acquisition.
ADBE P/E Ratio data by YCharts.
In September 2022, Adobe announced its intentions to acquire Figma for $20 billion -- a hefty price tag for a company only producing $400 million in annual revenue. After news of Adobe's plans was released, the stock plummeted. Additionally, after news surfaced that the DOJ was moving to block Adobe's acquisition, the stock tumbled again, although it has since recovered.
With that much uncertainty surrounding the stock, it's an opportune time to establish a position in Adobe as the company will still be strong regardless of the outcome of the acquisition. Investors can purchase an excellent company for a fair price today by capitalizing on the market's pessimism.
3. PayPal
Few companies took shareholders on as much of a roller-coaster ride as PayPal (PYPL -1.15%) has over the past few years. After trading around $120 prior to COVID-19, peaking at over $300 in midsummer 2021, then tumbling down to its current $60 share price, PayPal has been a frustrating investment. In fact, PayPal hasn't been at these levels since 2017 -- even as its revenue has more than doubled.
To me, this smells like an opportunity. The fintech company, which enables digital payments between customers and merchants, is determined to transition to a more mature and efficient business model. In Q1, earnings per share (EPS) metric jumped 61%. It also grew revenue by 9%, not bad considering that consumers weren't as apt to spend in Q1. For 2023, PayPal expects EPS to come in at $3.42 versus $2.09 in 2022.
This values PayPal's shares around 18 times full-year estimates, an excellent price for a company that's still growing revenue at a respectable pace. PayPal's management sees this opportunity and is executing its share repurchasing plan to the best of its abilities. With planned repurchases of about $4 billion in 2023, PayPal will reduce its outstanding shares by around 6%.
PayPal is a massive bargain at these levels. Although many investors have left the company for dead, it still makes sense as a value play in a portfolio, although its days of rapid growth are likely over.
