With such undervalued stocks, investors get a strong foundation for their portfolio along with potential for positive returns. While the allure of high-flying startups is undeniable, there’s a certain comfort in established companies with a proven history of success. These household names offer a sense of stability and often provide reliable dividends alongside the possibility for long-term growth.
However, even established companies aren’t immune to market downturns and changing landscapes. While the S&P 500 index has climbed over 6% year-to-date (YTD), some well-known companies have lagged behind, despite possessing the fundamentals for future success. Let’s explore three such undervalued stocks, highlighting their enticing buys in the second quarter.
Cisco Systems (CSCO)
Leading our selection of undervalued icons is Cisco Systems (NASDAQ:CSCO), renowned for its networking hardware, software and telecommunications equipment. It also provides a robust portfolio of high-technology services.
The networking giant reported downbeat second quarter of fiscal year 2024 results in February. Total revenue declined 6% year-over-year (YOY) to $12.8 billion, while non-GAAP earnings per share (EPS) fell 1% YOY to 87 cents. These results were attributed in part to a 12% YOY decline in product orders, due to macroeconomic concerns and customer inventory adjustments.
Yet, management has been busy with increasing Cisco’s offerings. The company recently launched Cisco Hypershield, a new approach to securing data centers and clouds. This platform addresses the increasing demands that the artificial intelligence (AI) revolution has put on IT infrastructure. Moreover, Cisco also completed two strategic acquisitions: Splunk in March and Isovalent in April. Splunk will bring market-leading security and observability solutions, while Isovalent will add innovative technologies in cloud-native networking and security.
So far in 2024, CSCO stock has declined more than 4%. However, the company remains committed to shareholder value through its healthy dividend yield of 3.31%. Furthermore, with a forward price-to-earnings (P/E) ratio of 12.8x and a price-to-sales (P/S) ratio of 3.5x, CSCO appears relatively undervalued among tech peers. Analysts have a 12-month price target of $53 for CSCO, suggesting potential upside of 10% from current levels.
Gilead Sciences (GILD)
We continue our discussion of undervalued companies with Gilead Sciences (NASDAQ:GILD). The primary therapeutic areas for the biopharma company include HIV/AIDS, viral hepatitis, respiratory diseases, cancer and inflammatory conditions.
Gilead reported mixed financial results for the fourth quarter of 2023. Total revenue declined 4% YOY to $7.1 billion, primarily driven by lower sales of Veklury (“Remdesivir”) and HIV medications. Diluted EPS also decreased 12% to $1.14 compared to the prior-year quarter, reflecting higher operating expenses. However, non-GAAP EPS, which excludes certain one-time items, increased 3% to $1.72 YOY due to lower overall costs.
Meanwhile, management finalized its acquisition of CymaBay Therapeutics for $4.3 billion in March, bolstering its leadership in developing treatments for liver diseases. This strategic move adds CymaBay’s promising seladelpar drug candidate for primary biliary cholangitis and pruritus to Gilead’s liver disease portfolio.
Despite a 18% YTD decline in price, GILD stock remains attractively valued at 9.5x forward earnings and 3.1x sales. Gilead Sciences has a history of providing consistent dividends, which currently offers a 4.61% yield. Wall Street also remains bullish, with a median 12-month price target of $82, implying a potential 23% upside.
ON Semiconductor (ON)
The final pick among undervalued stocks is ON Semiconductor (NASDAQ:ON). The company designs and manufactures innovative semiconductor solutions that contribute to energy efficiency and signal processing across various applications.
Management of the semiconductor company reported mixed financial results for the fourth quarter and full year 2023 in February. Revenue declined 4% YOY to $2.02 billion, while diluted EPS decreased 5% to $1.25, due to lower gross and operating margins. However, full year 2023 automotive revenue surged 29% YOY to a record $4.3 billion.
ON Semiconductor recently announced the formation of the Analog and Mixed-Signal Group (AMG). This move aims to unlock an additional $19.3 billion total addressable market and accelerate growth in the automotive, industrial and cloud end-markets. AMG will combine its expertise in power management and sensor interface technologies, to deliver advanced functionalities.
Yet, ON shares have tumbled more than 25% YTD. As a result, the stock remains attractively valued among industry peers with a forward P/E ratio of 14.5x and a P/S ratio of 3.3x. According to Wall Street analysts, the ON stock presents a 47% upside potential, based on average analysts’ price target of $89.
On the date of publication, Tezcan Gecgil did not have (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
Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.