The SPDR S&P 500 ETF Trust (SPY) has gained more than 70% since hitting a brutal low in March 2020. Though a disconnect between the stock market and the economy persists, the economy has started recovering. With the expectation of resumed business growth in a recovering economy this year, many investors are still chasing high-growth stocks even though they are trading at lofty valuations.

However, several analysts believe that the mass coronavirus vaccination program and the new Biden-Harris Presidential administration will drive a big shift in investments from expensive growth stocks to affordable, quality turnaround candidates.

Irrespective of market movements, a strong business model almost always helps a stock outperform the broader market in the long run. Hence, we think it would be a good idea to bet on companies that are trading at reasonable prices but have solid earnings growth potential.

Infosys Limited (INFY), Manulife Financial Corporation (MFC), United Microelectronics Corporation (UMC) and National Energy Services Reunited Corp. (NESR) are four fundamentally sound companies that are currently trading below $20. These stocks could offer intriguing upside.

Infosys Limited (INFY)

Incorporated and domiciled in India, INFY is one of the most popular technology services outsourcing stocks. The company provides consulting, technology, outsourcing, and next-generation digital services in North America, Europe, India, and internationally. INFY operates through the following segments – Financial Services and Insurance; Manufacturing; Retail; Consumer Packaged Goods and Logistics; Energy, Utilities, Resources and Services; Communication, Telecom OEM and Media; Hi-Tech; Life Sciences and Healthcare, among others.

INFY launched Infosys Cortex, its customer engagement platform last week. The platform leverages technology from Genesys, a global leader in cloud customer experience and contact center solutions, along with Contact Center AI services from Google Cloud and its managed artificial intelligence (AI) and analytics services. INFY also recently launched Infosys Cobalt, offering its applied AI cloud, which is built on NVIDIA DGX A100 systems, the universal system for all AI workloads that delivers unprecedented compute density, performance, and flexibility.

INFY’s fiscal third-quarter results impressed the market. Its total revenues grew 8.4% year-over-year to $3.52 billion. Digital revenues, which represented  50% of its  top-line, increased 33.6% year-over-year to $1.76 billion. This was driven primarily by a significant rise in large deals and fast-growing digital services. Solid demand for its services in cloud, IoT, cyber security, software-as-a-service, user experience, data and analytics also served as major drivers. Its adjusted EPS came in at $0.17, rising 12.5% compared to the year-ago quarter.

The company added 139 clients during the fiscal third quarter. It also signed multiple large deals, with total contract values (TCV) of $7.13 billion. The company’s TCV during the reported quarter was the highest in its history. An increasing reliance on technology due to the global remote working culture, along with a depreciating Indian rupee is making INFY’s products more competitive. Analysts expect INFY’s current year revenue and EPS to grow 6% and 10.9%, respectively.

INFY closed Friday’s trading session at $18.18, gaining 47.5% in the past six months. The stock has recently hit its 52-week high of $19.07.

How does INFY stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

A for Overall POWR Rating

The stock is also ranked #2 of 14 stocks in the Outsourcing – Tech Services industry.

Manulife Financial Corporation (MFC)

MFC provides financial advice, insurance, and asset management services  in Asia, United States, and internationally. The company offers life and long-term care insurance, guaranteed and partially guaranteed annuity products through insurance agents, brokers, banks, financial planners, and direct marketing. It also manages  mutual funds, exchange-traded funds, group retirement and savings products, and institutional asset management services and other banking products.

In December, MFC announced an agreement between VietinBank and its subsidiary, Manulife (Vietnam) Limited, to establish an exclusive 16-year bancassurance partnership to better meet the growing financial and insurance needs of the Vietnamese people. The company continues to extend its product and distribution reach. In the third quarter, MFC sold its first policy in Myanmar, a digitally savvy market with one of the lowest insurance penetration rates in Asia.

MFC will hold a webcast to release its fourth quarter 2020 financial results on February 10, 2021. In the third quarter ended September 30, 2020, the company generated a top line of C$13.4 billion. Though core earnings were down 6% year-over-year, MFC posted a strong Life Insurance Capital Adequacy Test (LICAT) ratio of 155%, which indicates  substantial financial flexibility. Its EPS for the quarter came in at C$1.04, rising 197% year-over-year, on the back of portfolio optimization and expense efficiency.

The insurance industry derives major revenue from interest rate sensitive products and services. The current near-zero interest rates are significantly impacting life insurers’ earnings, capital, reserves, liquidity and competitiveness. MFC is incorporating technology and redesigning its products to further strengthen its Asia business. Its expanding wealth and asset management business and solid capital position are likely to drive company’s revenue this year.

MFC closed Friday’s trading session at $18.96, gaining 35.6% in the past six months. Furthermore, it is currently  trading just 6.8% below its 52-week high of $20.34.

MFC’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and a “B” for Peer Grade and Industry Rank. In the 34-stock Insurance – Life industry, it is ranked #5.

United Microelectronics Corporation (UMC)

UMC is a leading global semiconductor wafer foundry. The company provides high quality IC production with a focus on both logic and specialty technologies to serve every major sector of the electronics industry. UMC operates 12 fabs located throughout Asia, with a maximum capacity of more than 750,000 8-inch equivalent wafers per month. It operates primarily  through Wafer Fabrication and New Business segments.

UMC, in association with eMemory, a global leader in the embedded non-volatile memory market, and its subsidiary, PUFsecurity, has successfully developed the world’s first PUF (Physical Unclonable Function)-based secure embedded flash solution. PUFsecurity’s PUFflash integrates eMemory’s NeoPUF into UMC’s 55nm embedded flash technology platforms to deliver a secure embedded flash.

UMC is scheduled to release the earnings report for its fourth quarter ended December 31, 2020, on January 27. In the third quarter, UMC reported revenue of $4.2 billion, growing 18.9% year-over-year, on the back of stable end-market demand for applications in wireless connectivity, power management ICs used in smartphones, and  high-speed interface I/O controllers. Its wafer shipments hit 2.25 million 8-inch equivalent wafers, while utilization rate remained firm at 97%. Its EPS for the quarter came in at $0.129, compared to the year-ago value of $0.043.

UMC witnessed a sharp rise in wafer shipments this year, propelled by the ongoing work-and-learn-from-home trend, which resulted in consistent monthly sales revenue year-over-year growth each month. According to management, “the current industry landscape appears to show favorable supply and demand dynamics towards foundry.” Hence, analysts expect UMC’s full-year 2020 revenue and EPS to increase 25.2% and 138.5%, respectively, year-over-year.

UMC is up a handsome 207% over  the past six months. The stock closed Friday’s trading session at $10.27 after hitting its 52-week high of $10.57.

It is no surprise that UMC is rated “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #21 of 99 stocks in the Semiconductor & Wireless Chip industry.

National Energy Services Reunited Corp. (NESR)

NESR is one of the largest national oilfield services providers in the Middle East, North Africa, and the Asia Pacific regions. Operating in more than 16 countries, NESR helps its customers explore by providing services such as hydraulic fracturing, drilling downhole tools, cementing, coiled tubing, filtration, stimulation, pumping and nitrogen services. It functions through two segments – Production Services and Drilling and Evaluation Services.

NESR was awarded a major contract for testing and associated services in Kuwait last week. The contract term is for five years and marks the entry of NESR into the Evaluation services sphere in Kuwait. In December, Gulf Energy SAOC, an affiliate of NESR, joined forces with Petroleum Development Oman (PDO), a major exploration and production company in the Sultanate, for the creation of 600 job opportunities over four years for Omanis in its product line services.

In the last reported quarter ended September 2020, NESR’s revenues improved 35% year-over-year and 7% sequentially to $218 million. The Production Services segment contributed $148.3 million to the overall top-line, improving 53% year-over-year. NESR also concluded the acquisition of Sahara Petroleum Services Company S.A.E. (SAPESCO) during the quarter. Its adjusted EPS came in at $0.16, compared to the quarter-ago value of $0.14.

The COVID-19 pandemic triggered a major collapse in oil prices. However, with the gradual resumption of economic activity around  the globe, demand for oilfield services has been recovering. In addition , the coronavirus vaccine should help stabilize global trade. In line with this progress, analysts expect NESR’s current year revenue and EPS to rise 19% and 48.3%, respectively.

NESR closed Friday’s trading session at $10.29, gaining 55.3% in the past six months. The stock recently hit its 52-week high of $10.87 and is currently presently trading just 5.3% below that level.

According to the POWR Ratings, NESR is a “Strong Buy.” It also has an “A” for Trade Grade, Buy & Hold Grade and Peer Grade. In the 54-stock Energy – Services industry, it is ranked #5.

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INFY shares were trading at $17.91 per share on Monday afternoon, down $0.27 (-1.49%). Year-to-date, INFY has gained 5.66%, versus a 2.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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