In times of market turmoil, there are often incredible opportunities to scoop up quality undervalued growth stocks that have been beaten down due to macroeconomic fears, rather than any issues with their underlying businesses. With the current bear market and recession worries weighing on investors’ minds, many strong companies have seen their share prices decline significantly from their highs. That’s despite many such companies holding robust long-term growth potential. By identifying these temporarily undervalued gems that are poised for rebounds once the clouds over the market start to clear, savvy investors can position themselves for massive returns in 2024 and beyond.
Specifically, there are plenty of innovative businesses that have seen their valuations compressed due to temporary disruptions or simple guilt by association with struggling sectors, even though their fundamentals are solid. In fact, some such companies are sitting on piles of cash and have nowhere to put it until market stability returns. The key is to tune out the market noise and objectively evaluate companies’ financials, growth drivers, and competitive advantages to determine which are primed to bounce back in a big way once macro conditions improve. This contrarian approach takes conviction, but can truly pay off exponentially, if timed correctly.
In this choppy market, patience and due diligence are critical. By targeting the highest-quality businesses with the biggest disconnects between price and intrinsic value, investors can capitalize on the temporary mis-pricing of certain equities, and generate substantial wealth. The coming rebound may take time to materialize, but these stocks could certainly see hefty upside when things turn around.
JinkoSolar (JKS)
The solar industry has faced substantial headwinds in recent weeks, and JinkoSolar’s (NYSE:JKS) stock has been collateral damage, despite the company firing on all cylinders. Indeed, this selling pressure has opened up a massive opportunity for the stock that could easily deliver triple-digit upside within a year.
That’s because JinkoSolar trades at an unbelievably low valuation despite its massive growth. The company’s forward price-earnings ratio sits at just 2.7-times, and its forward price-sales ratio stands at a mind-boggling 0.09-times. Of course, skeptics point to the company’s high debt load as a risk factor, especially with rising interest rates. However, JinkoSolar has continued to thrive amidst the tough macro environment, which suggests these leverage concerns are overblown.
In Q3 2023, JinkoSolar grew its earnings 140.7% year-over-year to $3.25 per share. Revenues were also up 60% to $4.36 billion. This growth was broad-based across geographies, with overseas shipments jumping significantly.
My take is that when interest rates eventually decline, the market will revalue JinkoSolar’s equity substantially higher. For now, Mr. Market is irrationally extrapolating temporary headwinds into the company’s long-term outlook. Once the macro stabilizes, JinkoSolar’s discounted valuation could drive outsized returns. Don’t sleep on this Chinese solar juggernaut. Wall Street analysts see 60% upside in one year. Indeed, this is among the most undervalued growth stocks in the market right now.
Kimball Electronics (KE)
Kimball Electronics (NASDAQ:KE) is another massively undervalued growth stock with a number of catalysts that can drive explosive returns. The company’s steady secular tailwinds in autos, healthcare, and industrials, plus geographic manufacturing diversification, provide a path to riches for investors with a long-term mindset.
In fiscal Q4 2023, Kimball Electronics grew sales by 33% year-over-year to a record $496 million. The company’s earnings per share jumped 90% to $0.76, also an all-time high. The company now expects to grow sales by 4-7% in fiscal 2023 despite macro uncertainties, highlighting its recession-resistant end-market exposure.
Kimball Electronics is the perfect example of Mr. Market incorrectly extrapolating a short-term correction into perpetuity. Since hitting 52-week highs in September, the stock is down almost 16% despite the company’s fundamentals remaining rock-solid. The stock’s forward price-earnings ratio sits at just 11-times.
Naturally, profitability should start inflecting positively in 2023. With a pristine balance sheet, Kimball Electronics has various levers to pull to enhance shareholder value via dividends, buybacks, and M&A. This is among the top undervalued growth stocks that value investors should capitalize on. The average Wall Street analyst believes KE stock can deliver 45% upside over the next year.
Pixelworks (PXLW)
Pixelworks (NASDAQ:PXLW) is a polarizing stock, but presents an extremely attractive risk-reward proposition at current levels. The company is a pioneer in video processing and digital display technology but has failed to capitalize on its first-mover advantage, remaining unprofitable after decades in business. This has spooked investors, especially as its profitability took a hit last quarter.
However, Pixelworks has compelling qualities that could double its stock in the next year. The company grew Q2 2023 revenues by 37% quarter-over-quarter, though the year-over-year decline in this metric came in at nearly 29%. Thus, Pixelworks’ financials will likely remain pressured through 2023. That said, the company’s management expects an inflection in 2H 2023, leading to growth in 2024. Margins already reflect substantial operating leverage that will magnify bottom-line gains.
Additionally, Pixelworks trades at just 1.1-times sales, so the company’s current valuation almost entirely prices in these balance sheet-related risks. The company is still investing aggressively in growth, including several promising initiatives in mobile and TrueCut Motion technology. As these future revenue streams ramp, profitability should follow. The sole $3 price target on the stock represents 152% upside over the next year.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.