Stock #1

AutoNation, Inc. (AN)

AutoNation, the largest automotive dealer in the United States, has benefited greatly from the increase in used car sales and their rising value. The company also launched its AutoNation USA used vehicle store concept, which is expected to drive massive profits in the years to come. This gives investors a nice combination of steady organic growth along with an exciting new growth driver.

Even as interest rates have risen, US consumers continue to show their clear love and devotion to cars as buying demand remains high. This shows up loud and clear with the Auto Dealers Group still being in the top 1/3rd of our Industry Rank proudly sporting a healthy B rating.

On the value front it is quite shocking to notice that the current PE stands just a notch below 6. That is an eye-popping cheap level for any stock let alone an industry leader like AutoNation.

The value story continues with an overall A rating. Meaning that across the 31 different factors in the POWR Ratings model, AN stands in the top 5% in value. This likely explains why the analyst at Bank of America still has a $205 price target on shares which is more than 50% above current level. That alone could make AN the poster child for this report of severely undervalued stocks.

Stock #2

Bristol-Myers Squibb Co. (BMY)

This report was updated in the middle of 2023 while it was unclear whether still in the midst of a bear market or has the new bull begun. Thus, I thought important to make sure we had some quality defensive selections in the mix that could weather any further downside action. BMY fits that bill perfectly as a large cap pharmaceutical company that rose nicely in 2022 when most other stocks are sporting much larger red arrows.

Healthcare is always a safe haven for investors in the midst of recession and growth concerns as most people will sacrifice spending in other places to stay on a healthy track. This notion shows up quite clearly in their long term earning track record with only 1 miss in the past 20 quarters. And that includes a string of 8 straight beats, meaning there is not much concern coming into each new earnings season.

On the POWR Ratings front it is chock full of high ratings that point to strong price action ahead. That party starts with A overall + A for Value. After that you have a string of B’s for Stability, Sentiment and Quality. Stability points to lower beta and better nights sleep during rough times. Whereas the high marks for Quality and Growth says it’s an extremely well run company likely to continue to produce positive earnings results in the future.

Just for good measure BMY offers healthy income to go along with the growth and value story. When cash is paying virtually nothing, then it certainly helps the ROI story when you add a nearly 3.5% dividend yield into the mix.

This really is an all-weather value stock. But especially beneficial to consider when the bearish storm clouds are still in the air.

Stock #3

Cardinal Health Inc. (CAH)

Cardinal Health is such a great pick for the times. It combines the defensive qualities of a healthcare services stock along with ample growth. Now toss in that is undervalued and also offers a 2.3% dividend yield, then really a stock that checks all the key boxes.

Let’s dig in a bit more. Typically a large cap in a conservative industry like CAH will have fairly tame earnings reports. And yet as we dig in we see that they have averaged an impressive +20.1% beat the past 3 quarters. This no doubt explains the nearly 2X increase in shares from the 2022 summer lows.

Looking ahead the growth train continues to roll on with 14% year over year earnings growth. And that party is expected to continue into 2024 when it increases to 16% growth. No signs of recession here!

Now we should consider the value prospects especially with shares so lively this past year. Shares in the top 2% of all stocks on our coveted Value rating. When you combine that for top 3% for Growth rating you appreciate why shares should continue to chug higher in the months ahead.

At this moment this is actually the 10th highest rank stock in the POWR Ratings universe covering more than 5,300 stocks in total. Truly rarified air which greatly increases the odds of future outperformance. And if that weren’t good enough you also get above average 2.3% dividend yield to pad your final results.

Stock #4

Honda Motor Company (HMC)

Originally a motorcycle manufacturer, Honda now makes automobiles, motorcycles, and power products such as boat engines, generators, and lawnmowers. It also makes robots and private jets and is currently Japan's third-largest automaker by sales and has the highest exposure to North America out of Japan's big three.

Honda's brand and its reputation for quality have certainly helped drive demand for its models. HMC has also been historically known for fuel-efficient cars, which has positioned it to take advantage of the massive consumer demand for more fuel-efficient vehicles.

The popularity of its vehicles has also allowed it to use fewer incentives than other automakers, boosting its profits and improving its cars' resale value. Like most automakers these days, the company is investing in electric vehicles with its Honda 2030 Vision. It should also benefit from a rebound in auto production as the chip shortage eases.

HMC is one of the top stocks according to the POWR Rating with an A or Strong Buy (top 50 out of all 5,300+ stocks covered by the rating system). It also has an A for Value due to its rock-bottom P/E of 9.5 and a very attractive 5% dividend yield. This makes for a winning combo, and a major reason that Wall Street analysts expect HMC to greatly outperform in the year ahead.

Stock #5

ICL Group Ltd (ICL)

This innovative Israeli company is a leader in providing specialty chemicals...especially those focused on potash and phosphate which are most often used in the agricultural field. They have enjoyed tremendous growth over the past years with the share price rising 4X from the 2020 lows to 2022 highs. But since making those highs early in 2022 shares have endured an unnecessary beating that provides value seekers a great opportunity to get on board.

Yes, commodity prices for potash and phosphate have peaked. Yet that doesn’t mean there is not tremendous demand...or tremendous opportunity to keep growing profits. As we look out to next year, they are still expected to produce 87 cents in earnings per share. And yet at this moment shares are trading under $7. That means shares are only being valued at 7.5X forward earnings. Very cheap in any market environment.

This explains why ICL sports an A for Value in the POWR Ratings and is a Buy rating overall. Just as important is also scoring an A for Quality which says that is it an extremely well run company. (Just a reminder that the Quality rating has the highest correlation with future stock outperformance). Add this altogether and it explains why analysts see shares having nearly tremendous upside opportunity in the year ahead.

Bear markets like 2022 are times that stocks sell off in a seeming indiscriminate fashion. This creates a great opportunity to stock up on tremendous companies now trading at discounted prices. That is exactly the special opportunity I see unfolding for ICL at this time.

Stock #6

ArcelorMittal (MT)

MT is a multinational steel company, headquartered in Luxembourg. Over the years it has been hungry on the acquisition trail leading to tremendous growth. In fact, right now they have emerged as the second-largest steel producer in the world. In time it would not surprise me if they became the largest.

The choice of MT is simple. That being the benefit of seeking industry leader in an economically sensitive group that can often be unnecessarily roughed up during bear markets. But by the same token that is what provides an exceptional long term investment story as you can buy shares on the cheap followed by years of economic expansion and profit growth that propel shares forward.

Value seekers, here is something interesting to note. After a series of eye popping earnings beats, they are expected to produce $5.12 EPS for the current year. Now with shares below $30 we are talking about an anemic PE of just 5, which presents a great entry point.

Now realize that the economy will get back on track in the years to come. And MT will once again see earnings hit previous peaks of $12 EPS...and likely higher.

Value investors understand how this kind of patience can pay off quite handsomely over the long haul. So hopefully you have the "metal" to add MT to your portfolio at these depressed prices to enjoy the serious "multi-bagger" upside potential in the years to come.

Stock #7

Veritiv Corporation (VRTV)

On the surface the idea of a consumer packaging company is not awe inspiring. However, when you appreciate their unique story of non-stop earnings beats you will appreciate why shares are up strongly in 2022 while most companies are painted red.

This is a great turnaround story that deserves our attention. That’s because Veritiv was stinking up the joint in 2018 to 2020 with a nasty string of 8 consecutive earnings misses.

Since then the turnaround has been nothing short of spectacular leading to a much healthier streak of 12 earnings beats in the past 13 quarters including an impressive 12% beat in the most recent quarter. It appears their focus on more environmentally friendly packaging is the key to their turnaround with no signs of stopping.

On the POWR Ratings front it does not get much better for the Value score (18th best overall out of more than 5,300 stocks rated). This no doubt explains why the analyst from TD Cowen has a street high $25 target on shares more than 50% above current levels.

Too often value comes at the cost of growth...but not here. This rare company scores extremely high on both key measures greatly increasing the odds of success.

Add it all up and it’s hard to find a more attractive value stock for the year ahead.