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Written by: Nikki-Lee Birdsey
The strong bull market in 2019, with a 24% gain in the S&P 500, makes finding undervalued stocks harder than usual. But economists are predicting a slowdown in the not so distant future, as major financial centers such as the United States and the United Kingdom experience political uncertainty.What will be the economic impact of the United Kingdom exiting the European Union? How will the Dow react to a Trump administration in crisis with the increasing pressure of impeachment and an election?
What Is an Undervalued Stock?
An undervalued stock is a stock selling at a price significantly below what is its assumed value. These are stocks with a lower than average P/E ratio or a low P/E ratio to growth rate. Blockbuster investor Warren Buffett is famous for investing in undervalued stocks, but it’s important to note that there is no guarantee that an undervalued stock will appreciate in value. Here are three undervalued stocks right now.
Cisco Systems (NASDAQ: CSCO) is a major tech conglomerate that makes and sells networking products and telecommunications equipment. Cisco’s current 18 P/E ratio is below that of the S&P 500's ratio of 23. With a current forward dividend yield of 3.1%, this stock has a three-year average dividend growth rate of 14.6%. Cisco is also exposed to technology growth areas like data center solutions and cloud networking. Cisco should also reap benefits from the future rollout of 5G.
Matador Resources Co (NYSE: MTDR) is a U.S. oil and natural gas company. It has an 8.1 P/E ratio that renders it undervalued, and is a takeover candidate by larger producers. Another good sign is that it is currently engaging in heavy insider buying, with falling year-to-date production costs.
Equitrans Midstream Corp (NYSE: ETRN) acquires and operates natural gas transmission, storage and water assets in the Appalachian Basin. Its trailing P/E ratio of 162 shows the company’s low valuation. This is mainly due to a delay in opening the Mountain Valley Pipeline and lower natural gas prices, but the expected earnings per share this year of $1.50 shows promise.