In theory, the concept of targeting deep value stocks seems simple enough: find the companies in various sectors with the lowest multiples of your choosing and voila! Deep value. In practice, it’s just not that simple.
Sometimes – perhaps even most of the time – it’s too easy to find deep value stocks that go too deep. In other words, before you step off the board, you want to make sure that there’s water in the pool. Yes, in certain cases, an undervalued metric could imply a bargain opportunity. However, just filtering for arithmetical phenomena could land you in big trouble.
To mitigate the prospect of stepping into a value trap, all of these ideas feature a minimum analyst consensus view of “moderate buy” as defined by TipRanks. With that, below are carefully curated deep value stocks for your consideration.
Food and beverage firm Dine Brands (NYSE:DIN) is in a bit of a pickle: just look at the ugliness in the past 52 weeks. You might be questioning whether there was some inebriation going on when assessing DIN as one of the deep value stocks. Joking aside, let’s look at the data.
Currently, DIN trades hands at a forward earnings multiple of 7.48X. That’s well below the sector median statistic of 17.6X. In addition, shares trade at 1.04X projected free cash flow (FCF), favorably lower than nearly 66% of its rivals. Still, Dine Brands posts a three-year revenue growth rate of 2.7%, which beats out 60% of the competition. As well, it’s reasonably consistent with annual profitability.
Regarding technical analysis, I can’t help but notice that DIN’s point-and-figure (P&F) chart denotes a low pole reversal. Therefore, DIN could conceivably shoot higher. Analysts are betting on exactly that, rating shares a consensus strong buy with a $60.25 average price target. Thus, DIN represents one of the deep value stocks to consider.
Titan Machinery (TITN)
A photo of a person in a neon green vest holding blueprints and standing behind a white table covered with supplies like pencils, a computer, a ruler and two wooden house shapes. Homebuilder Stocks
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One of the largest dealers of agricultural and construction equipment, Titan Machinery (NASDAQ:TITN) deserves a closer look. From a political standpoint, Titan should benefit no matter who becomes POTUS. Looking at the situation more broadly, agriculture and construction represent essentially permanently relevant endeavors. So long as humans exist, so will the need for these directives.
Unfortunately for now, the market just doesn’t seem to want to give TITN a chance. Its rough 52-week performance tells the tale. However, with that red ink comes a trailing-year earnings multiple of 5.83X. This metric sits well below the sector median 13.07X. Also, it’s curious that shares trade at 0.25X trailing-year revenue. However, sales growth has been robust in the past three years – basically better than 82% of the competition.
Sure enough, analysts peg shares a consensus strong buy with a $37.20 average price target. Further, the maximum price target – courtesy of Lake Street – clocks in at $45. With the worst individual rating a hold, it’s reasonable to assume that TITN ranks among deep value stocks to research.
Canadian Solar (CSIQ)
Canadian Solar (CSIQ) logo on the mobile device. Canadian is a company that manufactures photovoltaic solar modules and provides ready-to-use solar power solutions.
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While the Federal Reserve has arguably done a commendable job navigating monetary policy through various challenges, not every sector escaped unscathed. Just ask Canadian Solar (NASDAQ:CSIQ) and the namesake industry. Though a relevant enterprise aligned with broader political and ideological trends targeting renewable energy solutions, CSIQ struggled mightily last year.
The culprit? A terrible combination of stubbornly elevated inflation and rising interest rates (i.e. borrowing costs). With the industry suffering from headwinds impacting both its ability to expand along with consumer sentiment, the once-hot market subsegment fell from grace. However, a pivot in monetary policy could change the dynamic. Indeed, modestly inflationary trends but with reduced interest rates could help incentivize demand for solar solutions.
Enticingly, CSIQ trades at a lowly forward earnings multiple of 5.63X. Granted, I know that pings as a possible value trap. However, if again the monetary policy paradigm shifts, Canadian Solar could be in business. Additionally, analysts rate shares a moderate buy with a $31.57 average price target. It’s one of the deep value stocks to consider.
Movado (MOV)
A photo of the Movado logo outside a store in a mall.
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A tricky enterprise to consider, Movado (NYSE:MOV) represents a watch brand. Per its public profile, Movado timepieces are known for their signature metallic dot at the 12 o’clock position. As well, fashionistas recognize the minimalist style. Further, the company owns other brands, including Concord and MVMT. Still, it’s a risky proposition for deep value stocks.
As with many other enterprises on this list, MOV incurred a double-digit loss in the trailing one-year period. That’s understandable given that high inflation and high borrowing costs don’t necessarily incentivize luxury spending. Plus, if I’m being blunt, the uber-rich that don’t get impacted by economic concerns like the rest of us don’t buy Movado. Sorry to break it to you.
However, with a strong jobs report along with a robust economic machinery, discretionary spending could be back. If so, MOV trades at only 11X trailing-year earnings (without non-recurring items). And it’s not a throwaway undervalued metric given the solid three-year EBITDA growth rate of 21.8%. Benchmark sees MOV hitting $41, which is a tempting proposition.
Tactile Systems (TCMD)
Blurred hospital images, Patient bed in the hospital, Hospital cleaning, Hospital disinfection cleaning, Patient bed cleaning for emergency patients. Medical Properties Trust (MPW)
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A medical solutions company, Tactile Systems (NASDAQ:TCMD) represents a leader in the development and marketing of at-home therapy devices that treat lymphedema and chronic venous insufficiency. Per its website, Tactile offers unique solutions, including advanced, clinically proven pneumatic compression devices. Plus, it offers continuity of care services provided by a national network of product specialists and trainers.
Without a doubt, Tactile presents a much-needed platform to the impacted community. And sure enough, TCMD ranks among the securities that have seen its market value rise in the past 52 weeks. Still, looking back over the last five years, it’s been an ugly and wildly unpredictable ride. However, with that unpredictability comes a low earnings multiple of 13.8X, below the sector median of 27.56X.
Low multiples aren’t everything. Fortunately, Tactile backs up its business with a strong return on equity (ROE) of 17%. As well, it prints a net margin of 9.2%, beating out over 69% of its peers. Analysts rate TCMD a unanimous strong buy with a $24 average price target. It’s one of the deep value stocks to consider.
Build-A-Bear (BBW)
Build-A-Bear (BBW) workshop toy store shopping mall entrance in Burlington, Massachusetts
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Moving into the higher-risk spectrum of deep value stocks, Build-A-Bear (NYSE:BBW) is another discretionary retail play. Per its public profile, the company sells teddy bears and other stuffed animals and characters. During store visits, customers go through an interactive process to help assemble a bear to their preferences. It’s an intriguing idea but of course, “intriguing” doesn’t necessarily pay the bills.
In the past 52 weeks, BBW has been volatile though not nearly to the same degree as some other securities on this list. However, some of the lingering clouds hanging over the consumer economy have impacted sentiment. Still, if you’re willing to take a bet, Build-A-Bear offers attractive print.
For example, BBW trades at a forward earnings multiple of 6.6X. That’s well lower than the sector median of 14.53X. But it’s not a throwaway stat given its robust long-term EBITDA growth and strong profit margins across the board. Lastly, analysts peg shares a moderate buy with a $37 average price target.
SurgePays (SURG)
hand using online banking and icon on tablet screen device in coffee shop
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Easily the riskiest idea on this list of deep value stocks, SurgePays (NASDAQ:SURG) requires maximum vigilance. Yeah, you look at its 52-week chart and you don’t see much to be anxious about. But widen that view to the past five years and you can see the problem. Still, what might attract investors – especially young investors – is the underlying core directive.
From its website, SurgePays is dedicated to bringing financial and telecommunication products to the underbanked and underserved populations in the U.S. First of all, it’s a noble initiative. Second, the company on paper enjoys a large addressable market. With the Fed discovering that 13% of adults are underbanked as of 2021, that’s a massive canvas to address.
Of course, turning this opportunity into a viable business is where the sticking point lies. However, SURG trades at a forward earnings multiple of 4.82X, which may appeal to extreme bargain hunters. Also, the company enjoys a moderate buy consensus view with an average price target of $13.25. It could be one of the more sensible ideas among speculative deep value stocks.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
