STM - 3 Value Stocks to Buy on the Dip: June 2024

2024-06-26 06:00:00 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

No matter how much wealth you accrue, everyone loves a discount. That goes for the equities market as well. Sure, you can pick ideas that everybody else loves. However, you may be paying a premium for such opportunities. Instead, it might make sense to consider less-appreciated names. That brings us to value stocks to buy on the dip.

By value, we’re emphasizing enterprises that are trading at multiples below what they should be printing. For example, if a company’s equity trades hands below the underlying industry standard for earnings, that could be a deal. Typically, companies become undervalued when the market consensus lacks belief in their upward potential.

Of course, the risk here is picking ideas that are appear “cheap,” only to see them get even cheaper later. To better avoid that scenario materializing, we’ll be looking at names that the experts generally endorse. With that, below are intriguing plays for value stocks to buy on the dip.

Kraft Heinz (KHC)

Based in Pittsburgh, Pennsylvania, Kraft Heinz (NASDAQ: KHC ) makes arguably an easy case for value stocks to buy on the dip. First, the performance of KHC stock in the market this year hasn’t been great. At the same time, it features a “trustable” narrative. As a manufacturer of popular food and beverage products, Kraft Heinz aligns with an indelible catalyst: we’re humans and we all have to eat.

Let’s be fair – that doesn’t necessarily mean we should eat KHC-branded products all the time. However, in an age of elevated prices and borrowing costs, Kraft Heinz brings much-needed consumer value to the table. It also brings investment value. Right now, shares trade at 0.81X book value , lower than the sector median stat of 1.5X.

It gets better. For fiscal 2024, analysts are projecting 7.9% growth in sales to $26.68 billion. And earnings per share may hit $3.03. If so, that would imply an expansion of the bottom line of 9.4%. Yet KHC trades at only 10.8X forward earnings, below the sector median of 15.48X.

If you need more convincing, Kraft Heinz also offers a forward dividend yield of 4.86%. It’s easily one of the value stocks to buy on the dip.

STMicroelectronics (STM)

Semiconductor specialist STMicroelectronics (NYSE: STM ) presents a tricky case for value stocks to buy on the dip. Give me a moment to lay out the narrative. Fundamentally, the company – often abbreviated as simply ST – is supremely relevant. It manufactures specialized computer chips such as microcontrollers and integrated circuits (ICs) that are integral to broader tech-ecosystem functionalities. Therefore, it arguably should be bought whenever red ink strikes.

Notably, STM stock hasn’t enjoyed a great performance this year. So, it appears to be a discount. Indeed, shares trade for 10.54X trailing-year earnings and 19.42X forward earnings. In addition, the market prices ST at only 2.35X trailing-year revenue. Long story short, all these stats are well below their respective median print for the semiconductor industry, per Gurufocus.

Naysayers, though, may state that the undervaluation appears for a reason. For fiscal 2024, analysts believe EPS will erode by nearly 52% to $2.15. On the top line, sales may slip by 16.9% to $14.36 billion.

However, the counterargument is that as digital innovations become more interconnected, demand for microcontrollers, ICs and other solutions will likely increase. So, if you want to take a risk, STM stock seems intriguing.

Marathon Petroleum (MPC)

Another tricky case for value stocks to buy on the dip, Marathon Petroleum (NYSE: MPC ) requires fortitude and some cynical speculation. Let’s start with the basics and work our way down the details. Marathon specializes in oil and gas refining and marketing, otherwise known as the downstream component of the energy value chain. Basically, if it goes into your fuel tank, that’s downstream.

Right now, this segment of the value chain faces pressure due to a variety of factors, including hawkish monetary policy. Because of the headwinds, however, MPC stock appears undervalued. For example, shares trade at 8.62X trailing-year earnings. It also trades at 0.46X trailing-year revenue. Both stats are below their industry median values.

So, what’s the problem? Because of consistently robust jobs reports, the underlying inflationary pressure gives the Federal Reserve little reason to become accommodative. That could continue pressuring the downstream sector.

However, not all segments of the economy are doing well. So, it’s not impossible for the Fed to lower interest rates sooner than expected. Also, geopolitical flashpoints can potentially threaten global supply chains. If so, MPC stock would seem to be a good deal at current prices.

On the date of publication, Josh Enomoto 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 .

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