8 Best Undervalued Stocks to Buy in September 2024

The back-to-school shopping season doesn’t have to end just yet. There are still stocks to buy that will bolster your investment portfolio heading into the fourth quarter—historically the most productive time of year for stocks.

Plus, you can find some great deals right now if you know where to look. Undervalued stocks with the right characteristics can be more attractive than $1 boxes of crayons at Target. These well-priced stocks are attractive because they can have lower downside risk along with good long-term growth potential.

Below are eight undervalued stocks to consider as fall approaches. For each, we discuss key metrics, analyze the business model, and highlight important factors to know.

How We Picked These Undervalued Stocks

With the goal of finding solid dividend stocks at bargain prices, I ranked the S&P 500 by the lowest and highest price-to-free cash flow (P/FCF) ratios. The result was stocks with attractive P/E (price-to-earnings) and P/B (price-to-book) ratios and good-to-great dividend yields.

Here’s a quick summary of the criteria and why each one is important:

1. S&P500 includes the 500 largest public companies in the U.S. To be included in the index, entities must meet liquidity and profitability requirements. These criteria exclude small-cap stocks from consideration.
2. P/FCF measures how much you would pay per $1 of free cash flow to buy this stock. A value below 10 is ideal.
3. P/E The ratio quantifies the relationship between a stock’s price and a company’s earnings per share (EPS). A good P/E ratio varies by industry, but many investors aim for values ​​below 25.
4. P/B The ratio measures a stock’s price relative to a company’s book value. Book value is total assets minus total liabilities, or what would be left if the company sold everything and paid off its debt. Value investors prefer this metric to be below 1.
5. Dividend yield is the annual dividend per share divided by the stock price. Yield is important because value stocks tend to grow modestly over time. Dividend income generates early cash returns, making it easier to wait. By comparison, the average dividend yield of the S&P 500 as of June 30 is 1.3%.

8 Best Undervalued Stocks to Buy in September 2024

The table below shows eight stocks that appear undervalued based on the criteria described above. For additional value investing opportunities, see the best value stocks for 2024.

Tabulated data source: Morningstar.

1. Financial Synchronization (SYF)

• Last Price: $45.86
• Percentage/Financial Cash Flow: 1.9
• Price/earnings ratio: 6.6
• Cost/Value: 1.2
• Dividend yield: 2.2%

Synchrony Financial Business Overview

Synchrony Financial is a Connecticut-based financial services company that serves consumers and businesses. Consumer solutions include debt and deposit products. Business clients use Synchrony for branded credit cards, digital payments, and point-of-sale solutions.

Why SYF Stock Is Your Best Choice

In addition to its attractive valuation metrics, Synchrony has attractive dividend features. The company has a good dividend yield of 2.2% while maintaining a low payout ratio of 14.4%. Synchrony also regularly raises its dividend. The quarterly dividend per share of $0.25 increased by 66% from $0.15 in 2018.

SYF also has an increasingly positive outlook. In July, four analysts raised their price targets for the financial company.

In Q2 2024, SYF saw growth in loan receivables and the number of average active accounts. However, both the volume of new accounts and the net interest margin declined.

2. Capital One Financial (COF)

• Last Price: $133.07
• Percentage/Financial Cash Flow: 2.3
• Price/Earnings Ratio: 12.7
• Price/book value: 0.9
• Dividend yield: 1.8%

Capital One Financial Business Overview

Capital One offers credit cards, as well as consumer and commercial banking services in the U.S., the U.K., and Canada. The company reaches and serves customers through its website and physical branches in the U.S.

Why COF Stock Is Your Best Choice

In February, Capital One announced it would buy Discover financial services (DFS). The acquisition would make Capital One the dominant U.S. credit card lender with its own payments network. It paves the way for COF to compete with Visa (In) and MasterCard (MA), which currently processes three-quarters of all credit card purchases. The caveat is that the acquisition is subject to regulatory approval, which could prove difficult to obtain.

In its second-quarter 2024 earnings report, Capital One reported growth in average deposits, loans held for investment purposes and net interest margin. However, the bank increased its loan loss reserve by $1.2 billion to $3.9 billion.

3. Everest Group (EG)

• Last Price: $363.71
• Percentage/Financing: 3.3
• Price/earnings ratio: 5.4
• Cost/Value: 1.1
• Dividend yield: 2.2%

Everest Group Business Overview

Everest Group offers insurance products in the field of property insurance, personal insurance and specialist reinsurance on the domestic and foreign markets.

Why EG Stock Is a Top Pick

Like Synchrony Financial, EG has attractive dividend yields. The reasonable 2.2% yield looks even better next to an 11.9% payout ratio and a three-year annual dividend growth of 3.1%.

Everest Group also has business momentum that has a positive impact on the financial result. In the second quarter of 2024, EG increased its net income by 8% compared to the same quarter of the previous year. Contributing factors were an improvement in the loss margin and high net investment income.

4. The Northern Trust Foundation (NTRS)

• Last Price: $83.61
• Percentage/Financial Cash Flow: 4.5
• Price/earnings ratio: 11.6
• Cost/Value: 1.3
• Dividend yield: 3.6%

Northern Trust Business Overview

Northern Trust provides asset servicing, investment management, wealth management and research services to high-net-worth institutions and families. The firm has approximately $1 trillion in assets under management.

Why NTRS Stock Is a Top Pick

NTRS has a solid 3.6% dividend yield and also returns value to shareholders through share repurchases. In the first two quarters of 2024, the company spent $382 million on share repurchases.

Strong organic growth plus a focus on cost efficiency should continue to fund these shareholder programs going forward. In Q2 2024, NTRS saw a 6% increase in custody, investment and other service fees compared to the prior year quarter. Total assets under management also increased by 12%.

5. Bank of America (BAC)

• Last Price: $38.27
• Percentage/Financial Cash Flow: 6.3
• Price/Earnings Ratio: 13.5
• Cost/Value: 1.0
• Dividend yield: 3.0%

Bank of America Business Overview

Bank of America offers retail and commercial banking services as well as financial products related to lending, brokerage, retirement, wealth management and investments.

Why BAC Stock Is a Top Pick

Bank of America ranks second in terms of domestic deposit market share, right behind JPMorgan (JPM). BAC is also number two in total assets and has the third-best market position in investment banking, according to Dealogic. Solid positioning across multiple segments diversifies growth opportunities and mitigates downside risk.

BAC stock has also been on a roll. The stock price rose in July after the company reported second-quarter results that beat consensus estimates. Highlights of the quarter included:

• Year-on-year revenue growth of 1%, net of interest costs
• Global Wealth & Investment Management revenue up 6% year-over-year
• Continued growth in sales and turnover revenues and record average loan balances across global operations
• $3.5 billion in common stock buybacks

6. Hewlett Packard Enterprise (HPE)

• Last Price: $17.23
• Percentage/Financing: 6.4
• Price/Earnings Ratio: 12.7
• Cost/Value: 1.0
• Dividend yield: 3.0%

Hewlett Packard Enterprise Business Overview

Hewlett Packard sells computer hardware and related services that support data capture, management, and analysis. Customers include large enterprises and government agencies in the United States and around the world.

Why HPE Stock Is a Top Pick

HPE is a value stock with exposure to AI. In June, the company announced a partnership with Nvidia (NVDA), which will integrate HPE storage, compute, and cloud offerings with Nvidia compute, networking, and AI software solutions. The resulting product, HPE Private Cloud AI, enables organizations to deploy generative AI solutions faster.

The NVDA partnership isn’t HPE’s only AI initiative. The company is already generating sales and profits from its AI-enabled systems. HPE’s AI revenue doubled in Q2 2024 compared to the previous quarter. The company’s diluted earnings per share fell in Q2 compared to the previous year, but free cash flow rose to $610 million from $288 million.

7. US Bancorp (USB)

• Last Price: $41.68
• Percentage/Financial Cash Flow: 6.7
• Price/Earnings Ratio: 13.4
• Cost/Value: 1.2
• Dividend yield: 4.7%

US Bancorp Business Overview

US Bancorp offers a wide range of banking and financial services to individuals and institutions in the U.S. Principal offerings include deposit services, lending, credit card collections, and treasury management.

Why USB Stock Is a Top Pick

USB has a diverse and growing business model, as well as a history of making strategic acquisitions that drive growth or reduce costs. The company is also committed to maintaining a strong balance sheet and liquidity position. This discipline enables a healthy dividend yield of 4.7%.

The most important events in the second quarter of 2024 for USB compared to the previous year include good deposit growth, a decrease in non-interest expenses, improvement in credit metrics and an increase in diluted earnings per share by $0.13 to $0.97.

8. AT&T (T)

• Last Price: $19.34
• Percentage/Financial Cash Flow: 6.7
• Price/Earnings Ratio: 11.2
• Cost/Value: 1.3
• Dividend yield: 5.7%

AT&T Business Overview

AT&T provides wireless voice and data services, as well as Internet, data, and cloud services. The company also sells communications equipment.

Why T Stock Is Your Best Choice

AT&T is one of the best stocks in the S&P 500 in terms of dividend yield. Only six other S&P 500 companies pay a higher yield.

More importantly, AT&T is in a losing position thanks to CEO John Stankey’s efforts to refocus the company on 5G internet and fiber networks. Since Stankey took over in 2020, AT&T has reduced debt, improved cash flow and added a combined 11 million postpaid phones and fiber subscribers.

The benefits of Stankey’s strategic plan are now translating into the company’s financial results. Second-quarter 2024 highlights included a 7% increase in consumer broadband revenue and the addition of 239,000 net new AT&T Fiber customers. The company is on track to deliver annual free cash flow of $17 billion to $18 billion this year.

Summary

Undervalued stocks are trading at low prices relative to key metrics like free cash flow, earnings, and book value. Companies that also have a credible market position and pay competitive dividends are often solid candidates for a value portfolio.

Read more