For now, growth is outperforming value by a significant margin. The markets are rewarding growth, especially in AI stocks with higher multiples. This creates more momentum in these stocks as investors pile in due to fear of missing out. However, eventually, valuations will matter, and bargain stocks will rally.
Remember, some uncertainties could negatively impact growth stocks. For instance, the Federal Reserve stayed higher for longer and undershooting Wall Street’s rate cut expectations. Conversely, bargain stocks offer downside protection and potential upside as they catch up to intrinsic value.
By trading at a discount to the market, these three stocks are safer investments. Each trades at a forward price-to-earnings below 15 and offers over 10% earnings growth.
Skechers (SKX)
In the current environment, Skechers (NYSE:SKX) is a top footwear stock to buy. With consumers starting to face stretched finances after the exhaustion of COVID-19 savings, this footwear company will seize the opportunity. The lower pricing versus competitors like Nike (NYSE:NKE) makes it the perfect trade-down play.
As of this writing, SKX stock is priced for no growth, presenting an opportunity. It trades at 13 times forward earnings, yet consensus estimates call for at least 9% revenue growth over the next three years. Evercore ISI is more optimistic, predicting 11% compounded revenue growth between 2023 and 2026.
The company has just delivered a great annual report. In 2023, the firm achieved record annual sales of $8 billion, a 7.5% yearly growth. Notably, the company accelerated its direct-to-consumer channel, with the segment growing 24.3%. The growth propelled diluted EPS to $3.49, recording a 46.6% increase.
Even with this growth plus the greater than 20% EPS growth expected over the next five years, SKX stock is still undervalued. The market isn’t appreciating the significant growth opportunities the company has.
First, the company has a long growth runway, targeting over 10,000 stores from the current 5,000. Secondly, the company has launched new products like Skechers Football and signed Harry Kane, Europe’s top goal scorer for 2023, as a brand ambassador. Moreover, it has signed up several athletes and brand ambassadors to tell the Skechers story. Riding on this momentum, the third-largest athletic footwear brand in the world will continue to garner consumer attention.
Coterra Energy (CTRA)
U.S.-focused natural gas producers have been on a downward spiral as gas prices hover around multidecade lows. A warmer-than-expected February, rising gas production levels and above-average storage levels have impeded any fundamental catalysts.
However, it is worth noting that even though gas prices are at lows, energy stocks are some of the best bargains. According to Goldman Sachs, the energy sector has a free cash flow yield of 8.0% compared to the S&P 500’s 3.5%; also, regarding the next 12 months’ P/E, the sector trades at 12 times, a 40% discount to the index.
Coterra Energy (NYSE:CTRA) is one of the best bargain stocks among gas producers. The firm is pivoting to higher liquids production due to weak gas prices. According to 2024 guidance provided in Q4 FY2023 results, management expects oil volumes to increase by 6% and natural gas volumes to decline by 6%.
Moreover, due to a focus on capital efficiency, non-GAAP capital expenditures will be down 12% YOY to between $1.75 and $1.95 billion. As a result, management expects a free cash flow of $1.3 billion for the year. Susquehanna analysts expect further growth in 2025, forecasting $1.7 billion in free cash flow next year.
Finally, management has reiterated its commitment to return 50% of free cash flow to shareholders. As of this writing, the company pays a healthy 3.2% dividend. And with GAAP net income of $2.14 per share in 2023, you are buying the stock for a 12 times trailing multiple. With gas prices starting to rise, CTRA stock could rally going forward.
Viatris (VTRS)
This generic and off-patent branded drug maker has been in the investor’s penalty box for a while. However, after some recent changes initiated by new management, VTRS stock is worth a look. At 4.5 times forward earnings, this is one of the bargain stocks that could soar in 2024.
Viatris (NASDAQ:VTRS) was created by combining Mylan and Upjohn, a division of Pfizer (NYSE:PFE). After a few difficult years, fundamentals are looking up. First, the new management has simplified the drug portfolio by divesting non-core assets. Secondly, generic prices are stabilizing, and competition is finally declining.
These developments have led to an improvement in revenues and cash flows. And management has committed to returning a significant portion of free cash flow to shareholders through buybacks. At the JPM Conference, management said they expect to generate $2.3 billion in free cash flow annually.
In the future, management expects to return 50% through dividends and buybacks. That equates to over $1.1 billion returned, which is significant for a company with a market capitalization of only $17 billion. Notably, management has also stated it will undertake aggressive buybacks in 2024, which will be accretive considering the undervalued stock.
After simplifying the portfolio, management sees several growth opportunities. They see business development opportunities in ophthalmology, dermatology and injectables. These areas present predictable revenue streams that position the company for strong growth.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.