Typically when a mature company’s share price is hovering around $20 or below, it means that growth prospects are limited. But that’s not always the case.
As we’ve seen during this year’s market downturn, even well-run, fundamentally sound companies can get dragged down with the tide. Look no further than the large-cap Russell 1000 index, where nearly one in ten stocks are trading under $20 per share.
Yet sifting through the carnage to find the best bargains is no easy task. To emerge from the ashes, a stock usually needs one or more growth catalysts that can improve financial results and attract investors.
These three low-priced stocks have such solid long-term growth expectations—and valuations that are becoming hard to ignore.
Will AGNC Investment Corp. Stock Recover?
AGNC Investment Corp. (NASDAQ:AGNC) is one of Russell 1000’s diversified REIT constituents. It primarily invests in mortgage-backed securities (MBS) that are linked to residential housing loans and issued by government agencies like Freddie Mac and Fannie Mae.
Lately, aggressive Federal Reserve monetary policy in a weakened economic environment has been detrimental to the capital markets, including the MBS space. This is why AGNC reported a steep second-quarter loss and why the stock is down 18% year-to-date.
The stock has, however, bounced nicely from the $10 level in mid-June to around $12. That’s because the market has accepted the near-term challenges facing the company and is looking more toward what lies ahead. As management noted on the Q2 call, the longer-term picture has brightened considerably.
While the Fed is paring back its MBS portfolio to put additional upward pressure on interest rates, the pace at which it does is expected to slow as homeowner prepayments decrease. At the same time, the supply of agency MBS is forecast to be low in the months ahead. Valuation of the asset class is also getting near historically low levels, suggesting upward pressure on pricing—and thereby, AGNC’s share price could take hold. An 11.7% dividend yield should also attract investors moving forward.
Is Ford Stock Undervalued?
Ford Motor Company (NYSE:F) stock has rebounded sharply in recent weeks but, priced around $15, remains far away from January 2022’s record peak of $25.87. The automaker’s second-quarter results have investors revved up about what’s down the road as supply chain disruptions and semiconductor shortages have less of an impact on the industry.
While we may not think of Ford as an electric vehicle manufacturer, the reality is most automakers will someday be predominantly EV makers, with world governments imposing ambitious EV sales targets. Last quarter, Ford’s evolving EV lineup was a solid contributor to 50% top-line growth and an expansion in the company’s market share from 4.9% to 5.3%. The Mustang Mach-E, F-150 Lightning, and E-Transit delivery vans were all sources of strong demand.
As Ford continues to play its role in the EV revolution, a globally recognized brand should go a long way into driving success. The E-Transit is already off to a fast start, accounting for 95% of full-size electric vans sold in the U.S., according to Motor Intelligence. Granted, Ford is no Tesla when it comes to production volume or market share, but it stands to be a formidable player in the EV market for years to come—and at 5x earnings, a far less expensive way to play EV growth.
What are U.S. Steel Corporation’s Growth Prospects?
At first glance, United States Steel Corporation (NYSE:X) appears to be dead money. After all, the stock has been range bound for much of the past decade after it nearly touched $200 back in 2008. Those glory days may be over for the steel manufacturer, but significant growth could still be forthcoming.
Recent months have been choppy for the stock due to recession worries, but demand for steel should keep trending higher over time as the global economy recovers from the pandemic. Of course, much of U.S. Steel’s fortunes are tied to China, with demand from the world’s top steel consumer a major factor in steel futures pricing. Coronavirus conditions in China will first need to stabilize for the steel industry to regain its footing.
As they do, and as major central banks shift from aggressive tightening to more accommodative monetary policies, the outlook for steel prices and steel manufacturers should look brighter. U.S. Steel management struck a more bullish tone in its Q2 earnings call, expressing confidence that it can transition to lower carbon, lower capital business model while maintaining competitiveness. A major competitive advantage is expected to come from the company’s low-cost iron ore pellets strategy. Steps to move more of the supply chain to the U.S. should also improve profitability.
U.S. Steel’s acquisition of Big River Steel is another reason for optimism. The synergies that could be derived from North America’s most technologically-advanced mill have yet to be discovered, not to mention Big River’s potential to be a major supplier of environmentally-friendly steel products. The stock is trading at a fraction of its historical average P/E and, while the near-term looks murky, the long-term is starting to look much clearer.
