Top-tier U.S. stocks with premier fundamentals and valuations that scream “buy” are hard to come by. When such stocks are discovered, they often skyrocket higher, and I’d argue that most companies that once were undervalued (that have the sort of balance sheets and growth prospects investors are looking for) don’t have valuations that beg investors to hit the bid.
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Allstate (ALL), Synchrony Financial (SYF), and HP Inc. (HPQ) trade at 5-7 times earnings with strong fundamentals: Allstate generated 12% revenue growth with expanding margins, Synchrony posted $4.5B net income with 28% operating margins, and HP grew revenue 4% last quarter while generating $1.1B in free cash flow.
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These three financial and consumer companies remain depressed despite a steepening yield curve and flight-to-safety dynamics that typically benefit their sectors, creating valuation disconnects investors can exploit for long-term returns.
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Indeed, the U.S. stock market is, by most measures, extremely expensive. Historically, stocks trading at these levels leave little room for significant upside over the course of the coming decade, so there’s plenty of healthy skepticism being baked into some top names right now.
READ: The analyst who called NVIDIA in 2010 just named his top 10 AI stocks
That said, I’d also argue that there are a few pockets of value investors can pursue to amplify their long-term returns. Here are three of my top picks as overlooked gems right now.
A leading U.S. insurance giant, Allstate (NYSE:ALL) is among the leaders in providing coverage across most major insurance categories. From property and casualty insurance products to a range of insurance products including auto, homeowners, and commercial coverage, Allstate serves millions of customers (primarily in the U.S.) under its Allstate Protection and Esurance banners.
I think many in the market may have given up on Allstate, given the fact that ALL stock is currently roughly flat over the course of the past year. Many companies in the financials industry have risen considerably over this time frame, for a number of key reasons. From a steepening yield curve (making the long-duration portfolios of insurance companies like Allstate more attractive) to an increasingly prescient flight-to-safety trade building in the market, I would have thought Allstate would have seen a bigger bump by now.
That hasn’t been the case. In fact, this stock has remained depressed, with a trailing price-earnings ratio around 5-times. That’s hard to find in this market, and makes Allstate among the cheapest large-cap stocks in the market (that is investment worthy) in my books.
