These Undervalued Stocks Present Exciting Buying Opportunities for Very Different Reasons
The stock market remains unpredictable, prompting investors to weigh potential opportunities from sell-offs against macroeconomic and company-specific risks. With the market’s short-term outlook shrouded in uncertainty, investors may want to adopt a cautious approach to stock purchases, but some companies experiencing significant valuation declines could rebound to deliver remarkable returns.
If you’re searching for promising investments, consider these two different industrial sector companies, both down more than 50% from their peak valuations.
This High-Risk EV Battery Stock Has Potential
For investors seeking to balance secure portfolio holdings with stocks offering explosive growth potential or those with a high-risk appetite, QuantumScape (NYSE: QS) is worth considering.
As a leading developer of solid-state lithium batteries, QuantumScape’s technology could eventually enable significant advancements in electric vehicles (EVs) and consumer electronics. Unquestionably, QuantumScape is a speculative investment, and its stock struggles could be more surprising given the current unfavourable climate for growth stocks.
The company remains pre-revenue, which means it generates no sales or earnings. Instead, QuantumScape continues to incur losses as it develops and tests prototypes to progress toward commercial launches. However, risk-tolerant investors may consider investing in the company’s shares with a commercial product ready within the following year.
Although QuantumScape’s valuation has dropped approximately 95% from its peak, the battery expert’s market opportunities and prospects remain intact. The company continues to test prototypes with automotive partners, yielding generally positive results. QuantumScape’s prototypes can complete fast charging in 15 minutes while minimizing long-term battery capacity decline, outperforming most current EVs.
QuantumScape’s battery technology could enhance EV safety, substantially reduce charging times, and extend vehicle lifespans. Although the company’s success in revolutionizing the sector isn’t guaranteed, wagering on EV battery innovations could yield significant rewards.
3M’s Legal Risk May Already Be Factored Into Its Stock Price
3M (NYSE: MMM), down 52% from its recent high, may be an excellent stock to buy now. With a long history of effective business management and solid profit margins, 3M might not suit growth stock investors but could be an option for those seeking a reliable company at a reasonable valuation.
Between 2012 and 2022, 3M increased its revenue from $29.9 billion to $34.2 billion. While this growth may not excite growth stock enthusiasts, it was sufficient to expand earnings per share (EPS) from $6.32 to $10.18 during the same period.
Companies with a higher proportion of fixed expenses can leverage revenue more effectively. In simpler terms, sales increase while expenses remain relatively stable.
However, 3M faces legal challenges that could significantly impact the company. It faces lawsuits alleging harmful and deceptive practices in its chemicals business and defective earplugs for military use. This legal risk may explain 3M’s substantial stock decline.
Consequently, 3M’s stock price is depressed by much of this risk, with a price-to-earnings ratio of 11, the lowest in a decade.
Two Distinct Companies That May Be Worthwhile Investments
3M and QuantumScape have starkly different businesses and valuation profiles.
3M could experience substantial setbacks from lawsuits, but its core businesses remain robust, and its price-to-earnings multiples have reached historically low levels. In contrast, QuantumScape has yet to launch a product and remains a highly speculative investment, but the battery technology innovator could be on the cusp of significant breakthroughs.
Owing to their differing risk and valuation profiles, holding both stocks may only suit some investors, but acquiring a mix of growth and value stocks can help balance portfolio risk while still offering the potential for significant returns.
3M, with its established business and potential for steady growth, could provide a more stable investment opportunity, while QuantumScape’s innovative battery technology could offer significant upside if the company’s commercialization efforts succeed.
When evaluating these two diverse companies, investors should consider their risk tolerance and investment objectives. By carefully examining their financials, growth prospects, and potential headwinds, investors can decide whether these stocks are suitable additions to their portfolios.
