This year, stock markets have seen significant growth, largely driven by technology companies. However, some undervalued stocks have remained overlooked despite maintaining solid financial performance. This has left them relatively far from a fair valuation. They have even experienced declining share prices despite positive earning results. But as the market broadens in the coming months, they stand a chance to gain momentum, presenting a good opportunity as stocks to buy on the dip.
Analysts believe the market is positioned to continue rising and expand across different sectors. This is because the Federal Reserve is progressing towards easing monetary policy starting in Q3. Generally, stocks tend to perform better when interest rates decrease as investors dump lower-yielding assets in search of stocks that can provide a superior return. This frequently means that undervalued stocks may receive a boost.
Investors may examine companies with a relatively low price-to-earnings ratio (P/E) that have underperformed so far this year yet maintain sound financials. This suggests a potential for a turnaround in Q3, as the Fed is expected to begin easing in September.
Here are three undervalued stocks to buy on the dip, offered at lower prices ahead of a possible improvement.
Wynn Resorts (WYNN)
Casinos tend to benefit most when consumer disposable income is high, allowing for discretionary spending on travel and leisure activities. Recent inflation has weighed on disposable income levels, but easing interest rates may help boost this economic indicator in the months ahead. Should disposable income rise as expected over the summer travel season, Wynn Resorts (NASDAQ:WYNN) is well-positioned to capitalize on stronger demand.
The company generates substantial revenue from its Macau operations, which are reliant on visitors from China. However, some investors may be underestimating Wynn Resorts’ growth potential in light of economic uncertainties in Asia, leaving the stock undervalued at its current price.
Despite reporting first-quarter profits ahead of consensus estimates, WYNN stock has fallen around 14% year-to-date (YTD). Despite growing revenues, this has pushed the P/E ratio down to just 10.3 times. Analysts have acknowledged the attractive valuation, setting an average 12-month price target of $123.67 per share – signaling a potential upside of over 57% from current levels.
Wynn will publish second-quarter earnings next week. Analysts forecast a profit increase of $1.14 per share on anticipated sales growth of $1.75 billion. If the company’s latest financial results repeat, its share price may represent one of the market’s most undervalued stocks to buy on the dip.
Ulta Beauty (ULTA)
The cosmetics and beauty retail sector is intensely competitive, with Ulta Beauty (NASDAQ:ULTA) operating brick-and-mortar stores among major online competitors. While the CEO acknowledged recent quarters proving difficult, full-year expectations of higher sales and earnings remain. Therefore, this year’s substantial 33% drop in Ulta stock price appears disproportionate.
The lower price has left Ulta Beauty trading at a P/E ratio of just 13.7 times, its lowest since 2009. This makes it one of the potentially undervalued stocks to buy on the dip. This is especially a good choice for investors seeking returns, as the company posted 58.21% ROE and double-digit profitability margins.
Analyst forecasts anticipate Ulta Beauty’s earnings growth resuming with third-quarter profit increases. Such optimism could explain average price targets of $468.68 per share, signifying over 33% potential upside.
Ultra Beauty is expected to report reduced earnings of $5.50 per share on August 28, with revenue up 3.48%. Any upside surprise in EPS would be a positive sign to buy the undervalued stock on the dip.
Bath & Body Works (BBWI)
Bath & Body Works (NYSE:BBWI), the specialty soap and fragrance product provider, has faced headwinds recently as consumers spend more on essential items. This has influenced investor sentiment away from the company, despite beating guidance when reporting earnings in June and raising the midpoint of its outlook for the full fiscal year.
The business expects lower second-quarter profits, which may explain why shareholders have remained cautious for now. Shares are down almost 19% YTD, with most declines following its latest financial release. However, this BBW stock trades at a P/E ratio of just 9.1 times.
What could bring investors back and boost the share price in the coming quarters? Analysts believe the company may experience a turnaround in the third quarter, with profits expected to rise both sequentially and compared to the same period last year.
Typically, the enterprise sees stronger sales in the lead-up to the holiday season. This indicates Bath & Body Works could represent one of the market’s undervalued stocks, deserving of another look to buy in the dip.
On the date of publication, Stavros Tousios 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.