Investors are feeling a bit uneasy after the recent steep drop in U.S. stocks. Just after the S&P 500 reached new peaks above 6,140 in mid-February, it plummeted by about 7% over two short weeks.
The market’s sour mood has been heavily influenced by worries over how aggressive tariffs might drag down economic growth. According to current Federal Reserve models, we might see a 2.4% GDP shrinkage in the first quarter of 2025.
For investors focused on value, though, such market declines and economic jitters aren’t a cause for panic. Instead, they see them as a chance to pick up high-quality companies at more appealing prices. While some may hit the panic button, savvy and disciplined investors can calmly comb through the stock market’s rubble to discover businesses that are priced below their true worth.
Keeping a historical perspective is crucial. Right now, the S&P 500 is standing at 178% above its long-term trend line—a level we’ve never observed before. Such deviations from the norm have historically led to significant market corrections, as seen in 1929 and 2000. Although it’s tricky to predict when these market adjustments will happen, this data suggests that being selective and value-driven is of utmost importance.
With fear creeping back into the market and high-quality stocks becoming more affordable by the day, it’s a great moment to spotlight several companies that appear promising based on The Value Meter’s rigorous evaluation of enterprise value, net assets, and free cash flow potential.
The recent turmoil doesn’t alter the positive outlook for well-positioned companies that boast strong competitive edges and robust cash flows. If anything, this volatility provides long-term investors with an even better chance to buy in.
Let’s take a closer look at some stocks that are performing well based on The Value Meter. Each represents various sectors of the economy and brings unique strengths to the table. While not all may shine immediately, their combination of fair valuations and solid fundamentals makes them worthy of consideration for value-conscious investors eager to invest their cash in today’s uncertain market.
(Remember, The Value Meter rates stocks on a scale from 0 to 6, where 0 indicates extremely undervalued, and 6 suggests extreme overvaluation.)
Hanesbrands (NYSE: HBI)
Though the apparel maker’s EV/NAV ratio stands at 46.94 compared to an industry average of 6.12, Hanesbrands is a powerhouse in cash flow. Its free cash flow represents an impressive 44.60% of its net assets—vastly outpacing the 8.28% peer average. Despite hurdles in retail, Hanesbrands’ strong brand portfolio, essential product segments, and streamlined operations have enhanced its financial backdrop. As inflation eases and consumer spending picks up, Hanesbrands’ cash-generating prowess should set it up well for recovery.
Value Meter Score: 1.77 (Slightly Undervalued)
Datadog (Nasdaq: DDOG)
This cloud monitoring platform trades at an EV/NAV ratio of 13.42, slightly above average, but its free cash flow generation of 8.04% of its net assets is in line with its peers. What sets Datadog apart is its integrated observability platform, which provides customers a singular viewpoint for monitoring their entire cloud infrastructure. While not the cheapest option on our list, its solid standing in the burgeoning cloud monitoring scene and steady cash flow make it an alluring choice amid the market downturn.
Value Meter Score: 1.95 (Slightly Undervalued)
Taiwan Semiconductor (NYSE: TSM)
The largest dedicated semiconductor foundry worldwide boasts an EV/NAV ratio of 5.92, better than most of its peers. Though its free cash flow of 6.06% is not the highest, TSM’s pivotal role in the global tech supply chain offers a compelling value proposition. As a manufacturer of top-of-the-line chips for clients like Apple, Nvidia, and AMD, recent geopolitical issues have pushed down its valuation, potentially providing an opportunity to acquire this essential tech leader at a reasonable cost.
Value Meter Score: 2.13 (Appropriately Valued)
Vertiv Holdings (NYSE: VRT)
Despite its higher EV/NAV ratio of 15.61, Vertiv’s free cash flow generation of 17.11% outstrips its peers significantly. Specializing in solutions for data centers—an area witnessing rapid growth thanks to AI and cloud computing needs—Vertiv’s ability to generate substantial cash flows in high-growth markets makes it promising for long-term success. Recent market volatility offers a more tempting entry point for this data center infrastructure leader.
Value Meter Score: 1.58 (Slightly Undervalued)
Which stock should we analyze next with The Value Meter? Feel free to reach out and let me know!
