5 Best Undervalued Stocks to Buy Now

3. Acuity Brands, Inc (NYSE:AYI)

No of HFs: 38

Total Value of HF Holdings: $836 Million

According to S&P Global Market Intelligence, AYI fell 12.7% in February. However, the fall was acknowledged by CEO Vernon Nagel,

“was greater than previously forecasted due to weaker than expected market demand, which we estimate declined in the low-to-mid single digit range, with the decline in large projects even greater.” Nagel would go on to say that he was “cautious about overall market conditions within the lighting industry for the remainder of our fiscal 2020.”

However, during the third quarter of 2020, the company reported a cash and cash equivalent of $520.6 million.

The top hedge fund holder of this stock is David Blood and Al Gore’s Generation Investment Corporation, which had $365 million invested in the stock at the end of September. An insider purchased 2 shares at around $99. The stock is up more than 17% since then.

Miller Value Partners mentioned in their Q3 investor letter that the stock has historically generated attractive returns on capital,

“Acuity Brands is a leader in the lighting space. It has historically generated attractive returns on capital. We grew interested when the new CEO Neil Ashe, who we knew from his prior days at CNet and Wal-Mart.com, arrived. The company generates significant free cash flow with sustainable levels of roughly $400M per year (10% yield). While end markets are currently under pressure, Ashe’s vision is to drive a digital transformation in the business. There’s improvement potential from end market recovery along with internal business improvement. We think the stock is worth significantly more than where it’s trading.”

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