Even with the recent bout of market volatility, 2024 has been a fantastic year for stocks. The S&P 500 index has delivered a dividend-adjusted total return of roughly 25% across this year's trading. Meanwhile, the more growth-heavy Nasdaq Composite index has delivered a total return of 30%.
This year's performance has marked one of the most impressive annual bull runs in stock market history, and major indexes have managed to notch new highs at multiple points across the stretch. But while many stocks now trading at or near record highs could continue to march higher next year and beyond, investors shouldn't overlook some great companies that have been relative underperformers lately. Read on to see why two Motley Fool contributors think that investing in these stocks is a smart move right now.
Uber is serving up great growth and is attractively valued
Keith Noonan: Uber Technologies (UBER -0.70%) is the leader in the ride-hailing market, and it's been serving up some pretty impressive sales and margin growth. On the other hand, it's facing the risk of potential disruption from companies including Tesla and Alphabet's Waymo subsidiary. The company's revenue increased 20% year over year to $11.2 billion in the third quarter, and operating income increased 169% year over year to $1.06 billion.
The threat posed by self-driving taxis operated by larger and more resource-rich competitors has caused the market to reassess the company's stock. Its share price is currently down roughly 30% from its high.
On the heels of the big sell-offs, Uber is now valued at roughly 21 times this year's expected earnings -- a level that looks attractive given its strong sales and earnings growth. In fact, the company now has a forward price-to-earnings growth (PEG) ratio of roughly 0.1. For reference, a PEG ratio of less than 1 is often taken as a sign that a business is undervalued, because its share price has increased at a relatively slow rate compared to its earnings.
While autonomous vehicle companies including Waymo and Tesla do pose a significant competitive threat, it's not like Uber is standing still in the category. Uber's large and highly engaged user base gives it some natural advantages in the space, and the company is already working with other autonomous vehicle manufacturers to bring robotaxis to its platform. Uber has also built up a wealth of valuable data that can be used for training artificial intelligence models and improving the value of its ride and food-delivery services as new automation initiatives are deployed.
With the business still serving up impressive performance and the market seemingly underestimating its growth potential, Uber stock is a smart buy right now.
This Johnson & Johnson spinoff is a value stock opportunity
Lee Samaha: The self-care (Tylenol, Calpol), skin health and beauty (Neutrogena, Aveeno) and essential health (Listerine, Band-Aid) company Kenvue (KVUE -0.88%) has had a disappointing start as an independent entity. Its stock is slightly down in 2024, and down 21% overall since its spinoff from Johnson & Johnson in 2023.
That said, there's a compelling value case for the stock, and well-regarded value investing company Starboard Value is on board. As is often the case with Starboard investments, the proposition involves investing in a stock trading on a valuation discount to its peers due to an operational underperformance that could be improved with better execution. The benefit of doing the latter is an improvement in earnings and a valuation expansion to at the least the level of its peers.
As you can see below, its forward enterprise value (market cap plus net debt) to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple is significantly discounted to most of its peers.
Data by YCharts.
In this case, it's not hard to see what Kenvue needs to do: Improve sales growth and margins in its skin health and beauty businesses.
| Q3 2024 | Self Care | Skin Health & Beauty | Essential Health |
|---|---|---|---|
| Sales | $1.63 billion | $1.07 billion | $1.2 billion |
| Adjusted operating income | $557 million | $191 million | $291 million |
| Organic sales growth (YOY) | 0.7% | (2.7%) | 4.5% |
| Volume growth (YOY) | (1.1%) | (4.7%) | 0.8% |
Data source: Company presentations. YOY = Year over year
Management is fully aware of the issue and is devoting marketing resources (marketing spend is due to increase by 20% this year) to the issue in a way that it might not have been able to under the umbrella of Johnson & Johnson.
The opportunity is significant because, as Starboard notes, the skin health and beauty industry category is growing at a mid-single-digit rate, and competitors have taken market share.
As such, if Kenvue's marketing investments work out, the stock has substantive potential upside.
