10 Undervalued Cyclical Stocks To Invest In According to Analysts

In this article, we discuss the 10 undervalued cyclical stocks to invest in according to analysts.

The stocks that follow the patterns of the economy are known as cyclical stocks. Investors usually prefer these stocks during robust economic conditions and ignore them during downturns. However, this is just a general definition and every economic cycle is different. For example, energy is usually considered a cyclical sector, yet it was the best-performing sector in 2022 when inflation reached record highs, averaging 8% in 2022. By the end of the year, the Energy Select Sector SPDR Fund (XLE) had gained nearly 58% while the S&P 500 experienced its worst year since 2008, declining by 18.1%.

In 2023 and the first quarter of 2024, the S&P 500 had a tremendous run, gaining nearly 25%, and 11%, respectively. However, we have been recently seeing some signs of correction as it has declined by over 4.6% month-to-date on April 18. The conflicts in the Middle East and higher-for-longer interest rates leading to US treasury bonds reaching their 6-month highs of 4.67 % on April 16, may lead some cautious investors to opt for some low-volatility or counter-cyclical stocks. Nevertheless, the strong earnings season and easing inflation could prove to be beneficial for the more cyclical stocks.

Global Growth Forecasts Raised

Despite the recent declines in the market, the International Monetary Fund (IMF) believes that the global economy is still showing resilience. On April 16, it raised its global growth forecasts by 0.3% from October levels. The IMF now predicts global growth to be 3.2% in 2024 and 2025, similar to the levels experienced in 2023. It believes in “stronger activity” from the U.S., China, and other large emerging markets. Nevertheless, weaker activity is predicted in the Euro area. Furthermore, the IMF predicts the median inflation to come down to 2.8% by the end of 2024 and 2.4% in 2025, compared to 4% by the end of 2023.

Performance of Our Prior Cyclical Recommendations

We previously provided a list of the best cyclical stocks on November 2, 2023, and our top two stock picks were Amazon.com, Inc. (NASDAQ:AMZN) and The Walt Disney Company (NYSE:DIS). Both of these companies have outperformed the broader market between November 2 and April 18 and also on a year-to-date basis. Since November 2, 2023, Amazon.com, Inc. (NASDAQ:AMZN) is up nearly 30% and The Walt Disney Company (NYSE:DIS) is 35% higher, compared to the S&P 500’s 16% gains. On a year-to-date basis, the former is up over 19.5% and the latter has gained nearly 24% on April 18. Furthermore, analysts are still highly bullish on both these stocks and believe in significant upside potential for both.

According to TipRanks, Amazon.com, Inc. (NASDAQ:AMZN) has been covered by 42 Wall Street analysts and all of them rate the stock a Buy. Their average price target of $212.36 shows an 18% upside from its current levels on April 18. On April 18, DA Davidson analyst Gil Luria maintained a Buy rating on Amazon.com, Inc.’s (NASDAQ:AMZN) stock with a $235 price target. The analyst believes that the company’s expansion plans look promising with plans to add 45 million square feet of new space this year, focusing on delivery and fulfillment centers, especially in California and Phoenix. This expansion, along with increased delivery stations, strengthens Amazon.com, Inc.’s (NASDAQ:AMZN) competitive position against USPS, United Parcel Service, Inc. (NYSE:UPS), and FedEx Corporation (NYSE:FDX). The investment management firm, Polen Capital, also believes in the company and predicted significant margin expansion in its first quarter 2024 investor letter. The firm made the following comments:

“Amazon.com, Inc. (NASDAQ:AMZN) is our largest position. Much of our investment thesis is based on solid and durable earnings growth from its three biggest businesses (e-commerce, AWS, and advertising) and disciplined expense management that has supported robust margin expansion and earnings growth. It was only about a year ago that Amazon’s margins bottomed at 1.9%. They are now back to roughly 8%, and we think they can expand significantly.”

The Walt Disney Company (NYSE:DIS) was covered by 26 analysts over the last three months and 23 of them maintain a Buy-equivalent rating on the company and the average analyst price target shows a 14% upside at the time of writing on April 18. On April 11, JPMorgan resumed coverage of The Walt Disney Company (NYSE:DIS) with an Overweight rating and raised its price target to $140 from $120. The firm acknowledged challenges such as declining pay TV subscribers and advertising difficulties faced by the company’s traditional business segments, but suggests that the company can navigate these hurdles through substantial cost restructuring efforts, especially within its linear networks. The Walt Disney Company’s (NYSE:DIS) CEO, Bob Igor, is also very optimistic about the future of the company and made the following comments at its latest earnings call:

“Just one year ago, we outlined an ambitious plan to return to a period of sustained growth and shareholder value creation, and our strong performance in this past quarter demonstrates that we have turned the corner and entered a new era. As previously noted, we’re focused on transitioning ESPN into the preeminent digital sports platform, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences.”

Even though the market saw some pullback in recent days, experts still believe that these minor corrections do not significantly define the broader view of the market and are still bullish. For such conditions, some of the most undervalued cyclical stocks to invest in according to analysts include ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).

Our Methodology

For this article, we scoured through the Yahoo Finance and Finviz stock screeners to find stocks in all the cyclical sectors such as consumer discretionary, energy, financials, and materials, and more, with price-earning ratios of under 15 and market capitalization of over $10 billion. Next, we shortlisted our list to 25 stocks with Buy or better ratings and further narrowed down our list to 10 stocks with the highest average analyst price targets on April 18. The analyst ratings were taken from TipRanks and the stocks are listed in ascending order of their average price target upside potential.

Hedge fund sentiment around each stock has also been added. The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds as of the fourth quarter of 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.

10 Undervalued Cyclical Stocks To Invest In According to Analysts

10. Albemarle Corporation (NYSE:ALB)

PE ratio as of April 18: 8.37

Average Analyst Price Target Upside: 29.43%

Number of Hedge Fund Holders: 27

Albemarle Corporation (NYSE:ALB) is engaged in the development, manufacturing, and marketing of engineered specialty chemicals. As of April 18, the stock has a PE ratio of 8.37.

In the fourth quarter of 2023, 27 hedge funds held positions in Albemarle Corporation (NYSE:ALB) worth $311.059 million. As of Q4 of 2023, Coatue Management is the most prominent shareholder in the company and has a position worth $85.47 million.

Over the past 3 months, Albemarle Corporation (NYSE:ALB) has received Buy ratings from 11 Wall Street analysts. The average price target of $144.32 has an upside of 29.43% from the current levels, as of April 18.

Albemarle Corporation (NYSE:ALB) has caught the attention of analysts. Other such stocks include ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).

The London Company stated the following regarding Albemarle Corporation (NYSE:ALB) in its fourth quarter 2023 investor letter:

“Albemarle Corporation (NYSE:ALB) – ALB underperformed as weak lithium prices drove downward revisions to earnings expectations, and sentiment became more negative regarding demand for electric vehicles. Commodity prices are inherently uncertain, but we continue to view ALB-as a winner in this growing industry and favorably positioned on the cost curve. Our long- term view of ALB is not affected by short-term supply- demand dynamics for the commodity.”

9. MGM Resorts International (NYSE:MGM)

PE ratio as of April 18: 13.18

Average Analyst Price Target Upside: 35.46%

Number of Hedge Fund Holders: 45

MGM Resorts International (NYSE:MGM) is an owner and operator of casino, hotel, and entertainment resorts. In Q4 of 2023, 45 hedge funds held positions in MGM Resorts International (NYSE:MGM), and their total stakes amounted to $941.959 million. As of the fourth quarter of 2023, Corvex Capital is the biggest shareholder in the company with a position worth $287.014 million.

In the last three months, 14 Wall Street analysts covered MGM Resorts International (NYSE:MGM), and 12 kept a Buy rating on the stock. The average price target of $57.00 represents an upside of 35.46% from the last price of $42.08, as of April 18. It is also trading at low valuations. The stock is trading at a PE ratio of 13.18.

Longleaf Partners stated the following regarding MGM Resorts International (NYSE:MGM) in its fourth quarter 2023 investor letter:

“MGM Resorts International (NYSE:MGM) & Hyatt – Hospitality companies MGM Resorts and Hyatt were both strong performers in the fourth quarter and for the year, outperforming expectations that the post-COVID travel rebound would ease in 2023. Casino and online gaming company MGM saw double-digit revenue growth and strong 2023 bookings in Las Vegas in the first half, which moderated in the second half but remained solid. A cybersecurity attack negatively impacted 3Q results, but MGM does not expect the $100 million hit to have a material effect on its financial condition and operational results for the year. MGM bought back discounted shares at a 15% annualized rate and authorized another $2 billion buyback in 4Q, which represents another 15% of the company.”

8. Vale S.A. (NYSE:VALE)

PE ratio as of April 18: 6.46

Average Analyst Price Target Upside: 40.22%

Number of Hedge Fund Holders: 34

Vale S.A. (NYSE:VALE) is engaged in the production and selling of iron ore and iron ore pellets for use as raw materials. Over the past three months, 10 Wall Street analysts have given their recommendations on Vale S.A. (NYSE:VALE), with 5 recommending to Buy the stock. As of April 18, the stock’s average price target of $16.56 implies an upside of 40.22% to its current price.

As of April 18, Vale S.A. (NYSE:VALE) has a PE ratio of 6.46. For the first quarter, the company’s iron ore sales increased by 15% year-over-year and its copper production was higher by 22% year-over-year.

Hedge funds with investments in Vale S.A. (NYSE:VALE) were 34 in the quarter, with positions worth $1.05 billion. Fisher Asset Management is the top shareholder in the company as of Q4 of 2023 with a position worth $288.05 million.

7. NetEase, Inc. (NASDAQ:NTES)

PE ratio as of April 18: 14.78

Average Analyst Price Target Upside: 48.12%

Number of Hedge Fund Holders: 36

NetEase, Inc. (NASDAQ:NTES) is a provider of online games, music streaming, internet content, and more. The stock has a price-to-earnings multiple of 14.78 and is the seventh stock on our list of undervalued cyclical stocks to invest in according to analysts.

In the fourth quarter of 2023, hedge fund sentiment was positive toward NetEase, Inc. (NASDAQ:NTES). In the quarter, 36 hedge funds held positions in the company and their stakes amounted to $1.341 billion. This is compared to 25 funds in the preceding quarter, with positions worth $1.035 billion. As of the fourth quarter of 2023, Tairen Capital is the most significant shareholder in the company and has a position worth $164.307 million.

On April 9, NetEase, Inc. (NASDAQ:NTES) announced that it has renewed its publishing deal with Microsoft Corporation’s (NASDAQ:MSFT) Blizzard Entertainment. Under the deal, previous titles, including World of Warcraft, Hearthstone, Diablo, and others, will be brought back to the gaming market in China.

In the past three months, NetEase, Inc. (NASDAQ:NTES) has received Buy ratings from 11 Wall Street analysts. As of April 18, the average price target of $136.77 represents an upside of 48.12% from the last price of $92.34.

6. ZTO Express (Cayman) Inc. (NYSE:ZTO)

PE ratio as of April 18: 13.59

Average Analyst Price Target Upside: 49.75%

Number of Hedge Fund Holders: 20

ZTO Express (Cayman) Inc. (NYSE:ZTO) is a China-based company that offers freight forwarding, and delivery services. The stock has a PE ratio of 13.59, as of April 18.

Based on 7 Wall Street analysts’ ratings over the past three months, ZTO Express (Cayman) Inc. (NYSE:ZTO) has a consensus rating of Strong Buy. The average price target of $29.71 has an upside of 49.75% from the present levels, as of April 18.

ZTO Express (Cayman) Inc. (NYSE:ZTO) was part of 20 hedge funds’ portfolios with positions worth $614.654 million in the fourth quarter of 2023. Platinum Asset Management is the top investor in the company with a position worth $304.046 million.

ZTO Express (Cayman) Inc. (NYSE:ZTO) is one of the undervalued cyclical stocks to invest in according to analysts, along with ON Semiconductor Corporation (NASDAQ:ON), Baidu, Inc. (NASDAQ:BIDU), and Alibaba Group Holding Limited (NYSE:BABA).

5. JD.com, Inc. (NASDAQ:JD)

PE ratio as of April 18: 12.08

Average Analyst Price Target Upside: 49.75%

Number of Hedge Fund Holders: 56

JD.com, Inc. (NASDAQ:JD) is a supply chain-based technology and service provider. It is one of the undervalued cyclical stocks to invest in according to analysts as it is trading at a price-to-earnings multiple of 12.08x, as of April 18. In the fourth quarter of 2023, 56 hedge funds had stakes in JD.com, Inc. (NASDAQ:JD), with total positions worth $1.77 billion. Tiger Global Management LLC is the largest in the company as of Q4 of 2023 with a position worth $254.347 million, representing 1.8% of the investment portfolio.

On April 18, JD.com, Inc. (NASDAQ:JD) announced that the company bought back 87.5 million Class A ordinary shares (equivalent to 43.8 million ADSs) in the quarter that ended on March 31 in the open markets from both NASDAQ and the Hong Kong Stock Exchange for $1.2 billion.

Based on 9 Wall Street analysts’ ratings over the past three months, JD.com, Inc. (NASDAQ:JD) has a consensus rating of Moderate Buy. The average price target of $37.97 implies an upside of 49.75% to the stock’s current price, as of April 18.

4. Aptiv PLC (NYSE:APTV)

PE ratio as of April 18: 6.65

Average Analyst Price Target Upside: 50.75%

Number of Hedge Fund Holders: 39

Aptiv PLC (NYSE:APTV) is a designer, manufacturer, and seller of vehicle components and operates through Signal and Power Solutions, and Advanced Safety and User Experience segments.

Aptiv PLC (NYSE:APTV) has a PE ratio of 6.65, as of April 18. In the past three months, the stock has received Buy ratings from 10 Wall Street analysts. As of April 18, the average price target of $104.38 has an upside of 50.75% from the last price of $69.24.

39 hedge funds held positions in Aptiv PLC (NYSE:APTV) and their stakes amounted to $1.242 billion in the fourth quarter of 2023. As of December 31, 2023, Ian Simm’s Impax Asset Management is the most dominant shareholder in the company and has a position worth $651.977 million.

ClearBridge Investments commented on Aptiv PLC (NYSE:APTV) in its fourth quarter 2023 investor letter:

“Stock selection in the consumer discretionary sector also weighed on performance. This included two of the portfolio’s top individual detractors in Hasbro and Aptiv PLC (NYSE:APTV). Similarly, Aptiv, a Tier 1 automotive parts supplier to global automakers, faced lingering pressure stemming from the United Auto Workers strike earlier in the year as well as a lull in electric vehicle orders. However, unlike Hasbro, we see these headwinds as transitory issues and believe the company is the market leader and exceptionally well-positioned to be a long-term beneficiary of the growth in EVs.”

3. Alibaba Group Holding Limited (NYSE:BABA)

PE ratio as of April 18: 12.86

Average Analyst Price Target Upside: 51.59%

Number of Hedge Fund Holders: 116

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese company engaged in e-commerce and retail, among others. On April 10, Citi analyst Alicia Yap lowered the price target on the stock to $124 from $126 and maintained a Buy rating on the shares. The stock has a consensus Buy rating among 15 analysts and its average price target of $104.49 represents an upside of nearly 52% from current levels.

As of April 18, the stock’s PE ratio is 12.86, which makes it one of the undervalued cyclical stocks to invest in according to analysts. According to our database, 116 hedge funds held stakes in Alibaba Group Holding Limited (NYSE:BABA) in the fourth quarter of 2023, with positions worth $3.587 billion. As of December 31, 2023, with 4.35 million shares of the company, valued at $337.168 million, Appaloosa Management LP is the top shareholder of the company.

Artisan Partners stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its fourth quarter 2023 investor letter:

“Pretty much all of our holdings rose during the quarter. Only one stock declined by more than a couple of percent—Alibaba Group Holding Limited (NYSE:BABA), which was down 9% for the quarter and 12% for the year. This investment continues to be a disappointment. We estimate the shares are trading at around 5X EBITA—a valuation normally reserved for a company with evaporating profits. While it’s true Alibaba is underperforming its peers in the market, the fact is it remains the market leader in its core businesses, and the business is still growing. In the most recent quarter, revenues grew 9% and profits grew 26%.It’s not evaporating.

The management seems to be making meaningful changes designed to enhance shareholder value, including structural changes to improve profitability and restore its competitive position. It is monetizing non-core assets and making improvements in capital allocation. A lot of good things are happening that are not yet recognized in the share price. There are reasons—primarily geopolitical—for this, but at the current valuation, we could easily see the shares double and they would still be cheap.”

2. Baidu, Inc. (NASDAQ:BIDU)

PE ratio as of April 18: 12.52

Average Analyst Price Target Upside: 67.04%

Number of Hedge Fund Holders: 48

Baidu, Inc. (NASDAQ:BIDU) is a provider of internet search services and offers its services through two segments, Baidu Core and iQIYI. Baidu, Inc. (NASDAQ:BIDU) was part of 48 hedge funds’ portfolios in the fourth quarter of 2023 with a total stake value of $1.7 billion. Alkeon Capital Management is the biggest shareholder in the company and has a position worth nearly $260.437 million as of Q4 2023. As of April 18, the stock’s PE ratio is 12.52.

Baidu, Inc. (NASDAQ:BIDU) has a consensus rating of Strong Buy, as per the 14 Wall Street analysts that have covered it over the past three months. The average price target of $159.37 represents an upside of 67.04% from the last price of $95.41, as of April 18.

Ariel Investments mentioned Baidu, Inc. (NASDAQ:BIDU) in its fourth quarter 2023 investor letter:

“By comparison, China’s internet search and online community leader, Baidu, Inc. (NASDAQ:BIDU) traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”

1. ON Semiconductor Corporation (NASDAQ:ON)

PE ratio as of April 18: 12.84

Average Analyst Price Target Upside: 93.39%

Number of Hedge Fund Holders: 45

ON Semiconductor Corporation (NASDAQ:ON) is a semiconductor company, and it is an undervalued stock, as its price-to-earnings ratio is 12.84, as of April 18.

ON Semiconductor Corporation (NASDAQ:ON) occupies the first place on our list of undervalued cyclical stocks to invest in according to analysts as 20 Wall Street analysts have covered the stock, and 15 keep a Buy-equivalent rating on the stock. As of April 18, the average price target of $121.37 implies an upside of 93.39% from present levels.

In Q4 of 2023, 45 hedge funds held positions in ON Semiconductor Corporation (NASDAQ:ON), and their total stakes amounted to $885.107 million. As of the fourth quarter of 2023, D E Shaw is the most prominent shareholder in the company. The firm has increased its stake in the company by 66% to 2.975 million shares worth $248.534 million.

Artisan Select Equity Fund stated the following regarding ON Semiconductor Corporation (NASDAQ:ON) in its first quarter 2024 investor letter:

“Among our top detractors were Atlassian, ON Semiconductor Corporation (NASDAQ:ON) and Exact Sciences. ON Semiconductor is a leading designer and manufacturer of chips for power management and image sensing. From a battery-electric vehicle (EV) standpoint, ON is a leading producer of silicon carbide chips. Shares have been under pressure as the company grapples with multiple quarters of inventory right-sizing across the entire auto supply chain and slower-than-expected growth of EV sales. However, ON is seeing smaller sales declines than peers due to market share gains, and we believe the company will be equally well positioned if automakers rebalance their efforts from full EVs toward hybrid vehicles. We remain patient.”

Should you invest $1,000 in ON Semiconductor Corporation (NASDAQ:ON) right now?

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Disclosure. None. 10 Undervalued Cyclical Stocks To Invest In According to Analysts is originally published on Insider Monkey.