Buy cheap? Even in the stock market, buyers like to find a bargain. Defining a bargain, however, can be tricky. There’s a stigma that gets attached to low stock prices, based on the reality that most stocks don’t fall without a reason. And those reasons are usually rooted in some facet of poor company performance.
But not always, and that’s why finding stock bargains can be tricky. There are plenty of low-priced equities out there with sound fundamentals and solid future prospects, and these options make it possible for investors to ‘buy low and sell high.’ These are the stocks that Warren Buffett had in mind when he said, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
So let’s take his advice, and skim through the market for stocks that are just too cheap to ignore right now. Using TipRanks’ database, we identified two tickers that feature both low prices now – and powerful upside potential for the coming year. Not to mention each one gets a “Strong Buy” consensus rating from the analyst community. Let’s dive in and find out what’s driving that prospect.
Caleres, Inc. (CAL)
We’ll start our look with Caleres, a footwear company with a lineup of brands that includes, among others, the well-known Dr. Scholls name. Caleres has been in business since the last 19th century, and employing more than 9,200 people across 68 countries. The company markets its products through a network of nearly 1,000 retail stores and 13 e-commerce sites.
Caleres has been showing sound financial results to go along with its strong market position. In the last reported quarter, 3Q22, the company had record net sales of $798.3 million. Strong sales allowed the company to improve its inventory position, selling off some of the piled up merchandise; inventory levels in Q3 fell by 15.8% sequentially. The company’s adjusted EPS, while down 27% year-over-year, remained profitable at $1.15, and beat consensus estimates of $1.12.
For investors, all of this supported the company’s commitment to capital return. Caleres has an ongoing share repurchase program, as well as a regular quarterly dividend payment, and in Q3 sent some $24.1 million back to shareholders.
Despite all of that, shares in this footwear company have fallen by 19% over the last 2 months, badly trailing the S&P 500’s 2% slip.
5-star analyst Mitch Kummetz, in his coverage of CAL for Seaport, sums up his take on the stock in a simple line: “We believe the stock is too cheap for how the company is positioned.”
Kummetz goes into greater detail, writing, “Our overall takeaway is that CAL is undervalued, given structural improvements over the last few years, as well as how its business sets up for 4Q22 and FY23… First, the midpoint of CAL’s FY22 guidance assumes that early 4Q22 performance persists over the balance of the quarter, and there’s reason to believe it should be better than this. Second, many retailers are canceling orders to bring supply in line with demand, but we don’t believe this has been much of a factor for CAL’s Brand Portfolio. Third, if the US goes into recession next year, overall footwear sales will likely be challenging, but CAL seems well positioned to hold its own in such an environment.”
For these reasons, Kummetz rates Caleres shares a Buy, and his $37 price target implies a one-year upside potential of ~67%. (To watch Kummetz’s track record, click here)
Overall, there are 4 recent analyst reviews on CAL, and they include 3 Buys and 1 Hold to support the Strong Buy consensus rating. The shares are priced at $22.18 and their $32.50 average price target indicates a gain of 46% lying ahead. (See CAL stock forecast)
ZoomInfo Technologies, Inc. (ZI)
From shoes, we’ll step over to tech, where ZoomInfo lives in the cloud computing sector. ZoomInfo offers a cloud-based platform for market intelligence. The company’s platform, by giving comprehensive, accurate information, allows users to enhance their sales, marketing, and recruiting operations. Marketers and sellers, using ZoomInfo’s tools, can shorten their sales cycles and boost their success rates.
That all sounds good, but ZI shares are down 47% over the past 12 months – so a closer look is in order.
In early November, ZoomInfo reported its 3Q22 results – and the shares plummeted when the release was made public. While Q3 showed a solid top line of $287.6 million, for a 46% year-over-year gain, an unlevered free cash flow of $99.8 million, and an EPS of 24 cents, up 84% from the prior year, investors focused in on a couple of pieces of disappointing news.
The company missed on its quarterly billings, reporting $257 million where analysts had forecast $284 million, and its Q4 guidance, while in-line with estimates, was considered ‘weak’ at 21 cents EPS and $299 million in revenue. ZoomInfo will be reporting the Q4 data on February 6, and investors will learn then if their pull-back from the stock was justified.
Canaccord’s 5-star analyst David Hynes has been covering ZoomInfo, and he believes that this stock is just too cheap right now. The 5-star analyst writes, “There’s no way around it: ZoomInfo is in the penalty box. Whether it was poor communication on the Q3 call or that the sell-side was too dense to pick up on management’s signaling, 2023 estimates are still too high…. That said, based on our reset estimates for 2023… ZI shares are too cheap at ~23x EV/FCF. You can buy ZI now or you can wait for management to bless the rolling consensus with ‘official’ guidance, but either way, we think this is a stock that growth and/or GARP investors should own.”
Unsurprisingly, then, Hynes rates ZI shares a Buy along with a $43 price target, suggesting a robust upside of ~68% on the one-year horizon. (To watch Hynes’ track record, click here)
Tech firms tend to attract a lot attention from the analysts – and there are 18 recent analyst reviews on file for ZoomInfo. These break down 15 to 3 favoring Buys over Holds, for a Strong Buy consensus. Meanwhile, the $41.06 average price target implies a gain of 56% from the current share price of $26.26. (See ZI stock forecast)
Subscribe today to the Smart Investor newsletter and never miss a Top Analyst Pick again.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
