While the forward-looking mood for the equities sector may be pivoting in a positive direction, there are still opportunities among undervalued stocks with strong growth potential. Sure, the sector has been characterized by the blistering returns of technology players like Nvidia (NASDAQ:NVDA). However, the smarter approach may be to consider the path less traveled.
That’s not to say that strength can’t beget more strength. During a period of economic vagaries, investors find confidence in enterprises that have proven themselves. And of course, going the less-navigated route may lead to unforeseen pitfalls, along with volatility risks. There’s no such thing as a free lunch, especially on Wall Street.
Nevertheless, investors should at least consider broadening their holdings to include a mix of proven and less-appreciated ideas. On that note, below are very undervalued stocks with strong growth potential.
What it is: A semiconductor specialist, Himax Technologies (NASDAQ:HIMX) develops and manufactures advanced display driver integrated circuits (ICs) for multiple applications. These cover relevant sectors such as smartphones, television sets and medical devices. However, it just hasn’t achieved the success of its chip-manufacturing peers. Since the January opener, HIMX slipped 7%.
Relevance: Fundamentally, Himax offers significant relevance for the burgeoning high-resolution display manufacturing industry. According to Mordor Intelligence, the 4K display resolution market specifically reached a valuation of $61.48 billion in 2020. By 2026, experts project that the sector could jump to $213.92 billion, representing a compound annual growth rate (CAGR) of 23.1%.
Pros: Himax prints a three-year revenue growth rate of 20.8%, above 70% of its peers. However, HIMX trades at only 1.01x sales, below the sector median of 2.87x. Also, analysts rate shares a moderate buy with a $7.50 price target, implying 27% upside.
Cons: Dependency on the global chip production value chain presents issues. Also, Himax plies its trade in a competitive landscape.
Nutrien (NTR)
A photo of Nutrien's (NTR) website, with a magnifying glass over the logo.
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What it is: Based in Canada, Nutrien (NYSE:NTR) is the largest producer of potash in the world. It’s also the third-largest producer of nitrogen fertilizer. Given its massive importance to the broader food supply chain, NTR ranks among the undervalued stocks with strong growth potential. Sure, it’s down heavily this year but the world can’t survive without potash.
Relevance: Obviously, for anyone that understands critical resource supply chains, Nutrien’s relevance speaks for itself. But in terms of numbers, Grand View Research notes that the global potash market size reached a valuation of $57.14 billion last year. Further, experts project that by 2032, the sector will print revenue of $93.50 billion. That comes out to a CAGR of 4.9%. Exercise patience and put that in the bank.
Pros: Nutrien enjoys a robust three-year revenue growth rate of 28.1% and unsurprisingly consistent profitability. However, it trades at a lowly 0.9x trailing-year revenue, below the sector median of 1.12x. Analysts also peg shares a buy with a $72.36 price target, implying over 30% growth.
Cons: Geopolitics and economic uncertainty hit the sector, leading to NTR suffering a 23% year-to-date loss.
Pro-Dex (PDEX)
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What it is: Headquartered in Irvine, California, Pro-Dex (NASDAQ:PDEX) bills itself as a product realization firm. Specifically, it’s a world leader in finished device manufacturing and design. Per its website, Pro-Dex covers multiple industries, including medical devices, micro air motors, and adaptive torque-limiting solutions. However, it’s just above nano-capitalization territory with a market value of only $58 million.
Relevance: While it’s a diminutive enterprise, it could pack a serious punch. All it needs is to take a bite out of a burgeoning industry. Fortunately, according to ResearchAndMarkets, the global contract manufacturing sector reached a valuation of $246.51 billion last year. Further, experts project that the segment could hit $512.74 billion by 2030. If so, that would come out to a CAGR of 9.58% from 2023.
Pros: Interestingly, Pro-Dex prints a three-year revenue growth rate of 14%, above the sector median of 7.3x. Also, it trades at only 1.26x sales, below the sector median of 3.49%. Ascendiant’s Edward Woo rates shares a buy with a $28 price target, projecting nearly 71% upside. That makes it one of the undervalued stocks with strong growth potential.
Cons: Moving forward, it may encounter risks distinguishing itself from the competition.
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.
