On the hunt for new investment opportunities? Planning to expand your portfolio before the end of the year and looking to find a few bargains on the stock market? Undervalued stocks could be the key to growth in the months and years to come.

If you’re ready to take advantage of the potential of undervalued stocks, it is a good idea to do some research to understand why they can be exciting opportunities for investors. At the heart of everything is the P/E ratio. So, let us break down the basics before introducing you to five undervalued stocks that may be worth exploring.

What is a stock’s P/E ratio?

First things first, let us talk about P/E ratios.

The price-to-earnings (P/E) ratio is a fundamental financial metric that can give insights into a stock’s valuation. It is calculated by dividing the stock’s current market price by its earnings-per-share (EPS). In other words, it tells you how much investors are willing to pay for each dollar of earnings.

Bottom line: a stock with a high P/E might be considered overvalued, whereas a low P/E suggests the stock could be undervalued.

What is a good P/E for stocks?

So, what exactly is considered a good P/E ratio? There is no one-size-fits-all answer to that question, as what is considered a good P/E for one industry may be quite different from other sectors. There are also additional factors, such as the company’s growth prospects and how it stacks up against its competitors.

In general investment circles, it is agreed that a P/E ratio below 15 is an indicator of an undervalued stock. However, it is important to compare any company’s P/E ratio to businesses in the same industry to get a more accurate sense of its value.

Is it good to buy undervalued stocks?

In some circumstances, investing in undervalued stocks can be a smart move. Here are a few reasons why retail investors and experienced traders tend to like the look of undervalued stocks:

• Growth potential: They have the potential to see significant price appreciations as they catch up to their intrinsic value. Investing at the right time can, therefore, lead to impressive capital gains over time.
• Lower risk: Investors have already discounted stock prices due to some perceived negative factors, making them less vulnerable to further declines.
• Dividend yield: Some undervalued stocks offer higher dividend yields, which can give you a steady passive income stream even as you wait for the stock’s value to appreciate.
• Market sentiment: Negative sentiment or lack of attention from other investors can contribute to a stock being undervalued. As the market reassesses its prospects, there might be potential for a positive turnaround.

5 undervalued stocks to explore

Now that you have a better understanding of undervalued stocks and their potential benefits, let us have a quick glimpse into five undervalued stocks that might pique your interest:

United Parcel Service (UPS)

P/E Ratio: 12.25 *date as of 01/11/23

UPS, with a strong dividend yield at 4.18%, is currently trading at near 52-week lows. The logistics giant’s services are always in high demand, and its low P/E ratio suggests now could be an attractive opportunity for investors to purchase a stake.

Invest in UPS

Taiwan Semiconductor (TSM)

P/E Ratio: 14.03 *date as of 01/11/23

Taiwan Semiconductor looks set to benefit from the artificial intelligence (AI) boom, with many AI solutions relying on advanced semiconductor technology. A moderate P/E ratio and the potential for further AI growth over the near term make this an interesting option.

Invest in Taiwan Semiconductor

Tencent Holdings (0.700.HK)

P/E Ratio: 12.50 *date as of 01/11/23

Operating with a goal to “improve the quality of life through internet value-added services”, China-based Tencent Holdings has faced significant external pressures in recent years, from COVID-19 lockdowns to regulatory crackdowns by the Chinese government. The company looks to be undervalued at the present time, trading well below its long-term average P/E ratio.

Invest in Tencent Holdings

Pilbara Minerals (PLS.ASX)

P/E Ratio: 4.64 *date as of 01/11/23

Pilbara Minerals is a leader in the lithium industry – owning 100% of the world’s largest, independent hard-rock lithium operation – and is benefiting from the long-term growth of electric vehicles and clean-energy solutions. Its remarkably low valuation makes it an appealing choice if you are looking to ride the lithium wave.

Invest in Pilbara Minerals

JB Hi-Fi (JBH.ASX)

P/E Ratio: 9.44 *date as of 01/11/23

One of Australia’s most recognisable names in retail, JB Hi-Fi is popular among many investors thanks to its strong dividend payout, currently at 6.9%. With a low valuation and steady performance, this could be a good time to invest in the retail sector.

Investing in undervalued stocks should be a weapon in every investor’s arsenal, especially those looking to diversify their portfolios and find hidden value in various sectors. But as with any new investment, you will want to conduct thorough research and consider your financial goals and risk tolerance. While undervalued stocks can be rewarding, they may not always perform as you expect. The key is striking the right balance according to your investment strategy.

Invest in JB Hi-Fi

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