Three Undervalued Stocks To Load Up On Now

If you are here to see the value picks I will talk about in this article, let me give them to you right now: Novo Nordisk, Adobe, and Lululemon.

Despite now knowing which stocks we will be talking about, I would recommend you stick around for a bit, as I do have some interesting views and facts I want to share about these three companies.

Firstly, to analyze each company, we will use the 9 Pillar Analysis to see how well they are structured fundamentally. We will later also calculate their intrinsic values to figure out their acceptable buying prices.

Novo Nordisk: The Weight Loss Giant Trading at a Discount

First, I want to take a look at Novo Nordisk, the company responsible for many of the weight loss and obesity management drugs on the market. Foremost, I want to point out that despite the 53% fall in stock price over the past year, the company has been growing their net income at a very decent rate.

You can see above that their 5Y net income CAGR is sitting at 24.42%, quite higher than their 10Y 12.55% CAGR. Furthermore, the company's dividends have also been growing at a nice rate of 7.41% through the past 5 years, meaning that, in the long term, the compounding effect will be pretty strong.

Now another thing I want to point out is that the company is currently trading really cheap, at only 13.67 times their earnings, which in my opinion is really an underblow, especially because through the past 10 years their average PE was 27.30.

We can also take a look at the P/FCF, which is also sitting lower than the 10Y average of 30.90, sitting at 24.49, as you can see on the graph below.

After going through the DCF model and other valuation models such as the Graham's Formula or the Multiples Valuation on Moneyssense.com, I figured out that the company's intrinsic value is about $80 per share, meaning that it has an upside potential of about 50% at the current trading price of around $55 a share.

Therefore, with their growing financials and dividends, taking into consideration that they are trading very cheap, the grade provided by Moneyssense after we went through the 9 Pillar analysis and intrinsic value calculations is a B, in other words, a BUY rating.

Adobe: Leveraging AI, Not Threatened By It

Moving to the second stock, Adobe. I find a lot of people frightened that AI will pull companies like Adobe down, but in my eyes that just isn't the case. It is actually the very opposite.

It is like with Google; people are afraid that AI will erase search as we know it and therefore lower Google's revenue. The opposite is true, though. Google is leveraging AI and making browsing the internet and finding the correct answer much simpler than it was before, without signs of dropping revenue. This is the same case with Adobe. The company is in the absolutely best position to leverage AI for photo editing for example, and all the things that Adobe does.

Above you can see that indeed, the revenue keeps growing, with the 5Y CAGR sitting at 13.70%, lower than the 10Y CAGR, but still very decent.

The FCF is also moving only up, with the 5Y CAGR sitting at a decent 8.07%. Now again, like Novo, Adobe is trading extremely cheap compared to their historical prices. We are talking about a PE ratio of 21.92, compared to the 10-year average of 49.78, and a P/FCF ratio of only 15.50. Not only is the FCF higher than the net income, which is great as the FCF is what is used to buy back shares or pay down debt, for example, but the company is dirt cheap compared to both competition like Autodesk and historical pricing.

After going through the valuation models in Moneyssense, I came to an intrinsic value of $407, 14.53% higher than the trading price of $355. So going through the 9 Pillar Analysis and the Intrinsic Valuation models, we got a B rating, in other words, a BUY.

Lululemon: High-Quality Fitness Wear at a Discount

Now moving to the final company, Lululemon. This company is well known for their high-quality fitness wear, specifically yoga pants. Now there are two things I actually do not like about this company. The first one being that around 60% of their revenue comes from yoga pants, which, in my eyes, places them in a vulnerable position. The second reason is that recently, their profit margin reached its all-time high, which, of course, is a good thing, but it means that LULU has either been increasing the price of their merchandise or has been cutting costs, meaning the quality of their product, which they are so well known for, has been going down. Now I cannot say that I am certain that the product quality has gone down, but from what I have heard, the price is quite similar; the product is slightly worse, though.

Nevertheless, LULU has a very stable customer base, and with their revenue increasing at a 5Y CAGR of 24.54% and the 5Y FCF CAGR being 22.50%, investors are, in my opinion, overly frightened, leading the stock to fall by 40% through the past year.

This, of course, means that it is very cheap, trading at only 11.98 times earnings and 17.38 times FCF, much lower than the 10-year averages of 42.53 and 55.42, respectively.

Of course, as a value investor, this is something I look for, as it means that I can buy a stock that is growing in value at a discounted price. If you would like to be able to analyze companies and calculate their intrinsic value using the tools in this article, the site I am using is Moneyssense.com. It has a free version, so you don't need to pay a dime if you don't want to.

Conclusion

These three companies represent compelling value opportunities in today's market. Novo Nordisk and Adobe both received B (BUY) ratings after thorough analysis using the 9 Pillar Analysis and intrinsic valuation models. Lululemon, despite some concerns about revenue concentration and potential quality issues, offers strong growth at a significant discount with impressive financial metrics. Each presents a unique opportunity for value investors looking to buy quality companies at discounted prices.