The recent sharp pullback in U.S. stocks has many investors feeling queasy.
After soaring to new all-time highs above 6,140 in mid-February, the S&P 500 has tumbled roughly 7% in just two weeks.
Concerns about the impact of aggressive tariffs on economic growth have loomed heavily over market sentiment. Currently, Fed models are forecasting a 2.4% contraction in GDP in the first quarter of 2025.
But for value-focused investors, market pullbacks and economic turbulence aren’t reasons to fear – they’re opportunities to shop for quality companies at better prices. While others panic, disciplined investors can calmly sift through the market debris to find businesses that are trading below their intrinsic value.
It’s also important to maintain a historical perspective. The S&P 500 is currently trading at 178% above its long-term trend line, the highest figure we’ve ever seen. When the market traded well above its trend line in the past (like in 1929 and 2000), we eventually saw substantial corrections.
Though timing such reversions is impossible, this data suggests being selective and value-conscious is more important than ever.
With fear creeping back into the market and quality stocks getting cheaper by the day, now is a perfect time to highlight some businesses that look attractive based on The Value Meter’s cold, hard analysis of enterprise value, net assets, and free cash flow generation.
The recent volatility doesn’t change the fundamental outlook for well-positioned companies with strong competitive advantages and healthy cash flows. If anything, it simply offers a better entry point for long-term investors.
Here are several stocks that currently score well on The Value Meter, represent different sectors of the economy, and offer distinct advantages. While they may not all outperform in the short term, their combination of reasonable valuations and strong business fundamentals makes them worth considering for value-conscious investors who are looking to put cash to work in today’s uncertain market.
(Remember, The Value Meter rates stocks on a scale from 0 to 6, with 0 being extremely undervalued and 6 being extremely overvalued.)
Hanesbrands (NYSE: HBI)
The apparel maker may seem overvalued with an EV/NAV ratio of 46.94 compared with the average of 6.12, but Hanesbrands is a cash flow dynamo. Its free cash flow averages an impressive 44.60% of its net assets – more than five times higher than the 8.28% peer average. Despite challenges in the retail sector, the company’s strong brand portfolio, essential product categories, and operational efficiency improvements have bolstered its financial stability. As inflation pressures ease and consumers return to spending, Hanesbrands’ cash-generating power will position it well for a potential recovery.
Value Meter Score: 1.77 (Slightly Undervalued)
Datadog (Nasdaq: DDOG)
This cloud monitoring platform trades at a higher-than-average EV/NAV ratio of 13.42, but its free cash flow generation of 8.04% of its net assets is roughly on par with its peers’. Datadog’s competitive advantage comes from its integrated observability platform, which helps customers monitor their entire cloud infrastructure through a single pane of glass. While it’s not the cheapest stock on our list, the company’s strong standing in the growing cloud monitoring space and its consistent cash flow generation make it an appealing option during this market pullback.
Value Meter Score: 1.95 (Slightly Undervalued)
Taiwan Semiconductor (NYSE: TSM)
The world’s largest dedicated semiconductor foundry trades at an EV/NAV ratio of 5.92, slightly better than the average for similar companies. While its free cash flow of 6.06% of its net assets is lower than we’d like, TSM’s key role in the global technology supply chain makes it a compelling value play. As the manufacturer of the world’s most advanced chips, Taiwan Semiconductor serves clients like Apple, Nvidia, and AMD. Recent geopolitical concerns have compressed its valuation, creating a potential opportunity to own this mission-critical technology leader at a reasonable price.
Value Meter Score: 2.13 (Appropriately Valued)
Vertiv Holdings (NYSE: VRT)
This digital infrastructure provider has an EV/NAV ratio of 15.61, which is steeper than most. However, its free cash flow generation of 17.11% of its net assets is more than double what similar companies bring in. Vertiv specializes in power, cooling, and IT infrastructure solutions for data centers – a sector that’s experiencing explosive growth due to AI and cloud computing demands. The company’s ability to generate substantial cash flow while serving high-growth markets positions it well for long-term success despite its premium valuation. Recent market volatility offers a more attractive entry point for this data center infrastructure leader.
Value Meter Score: 1.58 (Slightly Undervalued)
What stock would you like me to run through The Value Meter next? Let me know here.