Investors buy stocks hoping those investments will gain value in the long run. However, some stocks have better margins of safety than others. This has led to the rise of long-term stocks to buy.
The margin of safety is a popular term among value investors who seek to buy companies that others have ignored. Once these investments gain more attention, the value investor gets rewarded. These types of stocks don’t go up as high as growth stocks, but they also carry less risk, hence the margin of safety.
Investors who accumulate these stocks don’t have the highest risk tolerances. They are okay with taking risks, but they don’t want to buy speculative companies with excessive valuations.
Some undervalued stocks present captivating long-term opportunities due to the companies’ revenue streams and improving profit margins. These three undervalued stocks can catch investors by surprise and generate good returns for long-term investors.
Qualcomm (QCOM)
Qualcomm (NASDAQ:QCOM) hasn’t enjoyed the same ride as other semiconductor stocks. After a brief rally from the end of May to the end of July, shares have almost given up all of their year-to-date gains. This development has brought the company’s P/E ratio below 15, and the dividend yield is approaching 3%.
Qualcomm has steadily raised its quarterly dividend per share from $0.57 in 2018 to $0.80 in 2023. That represents a 40.4% dividend hike over the past five years.
Shares currently trade at the same price point they had in August 2020. Despite the recent choppiness, shares have gained 64% over the past five years. Qualcomm can also receive a boost from the rising demand for AI chips.
Macroeconomic headwinds have hurt the company, and the corporation reported year-over-year declines in revenue and earnings. However, once Qualcomm rights the ship, its low P/E ratio relative to peers will make the stock look more attractive.
Cisco (CSCO)
Cisco (NASDAQ:CSCO) hasn’t enjoyed the best returns and is only up by 18% over the past five years. However, much of those gains come from the stock’s 14% year-to-date return. The software company recently reported 16% year-over-year revenue growth which indicates the company is on the path to recovery.
Cisco has exposure to software, cybersecurity, and cloud computing. These are three high-growth industries that can help Cisco command a higher valuation in the future. Shares currently trade at a reasonable P/E ratio that is just below 18. Investors also get to receive a dividend yield approaching 3% if they start accumulating shares.
CEO Chuck Robbins cited early wins in artificial intelligence that can help the stock gain more value over time. The rising demand for artificial intelligence tools, chips, and solutions is creating many opportunities in the stock market. Cisco is poised to benefit from the growing demand and still has a reasonable valuation compared to other companies that have benefited from the AI boom.
Prudential (PRU)
Prudential (NYSE:PRU) is a reliable insurance company that has been around for almost 150 years. Shares currently trade at a 17 P/E ratio, but the firm’s 8 forward P/E ratio paints a better picture.
Prudential also happens to be a popular pick among high-yield investors due to a dividend yield approaching 5.40%. Prudential has also done a nice job of raising the dividend. This year, the insurance giant hiked its quarterly dividend per share from $1.20 to $1.25. That represents a 4.2% year-over-year increase.
The stock experienced headwinds last year that appear to be in the rearview mirror. The company’s net income of $511 million in the second quarter is a significant improvement from the $1.01 billion net loss in the same quarter last year. It marked the firm’s fourth consecutive quarter of underlying earnings growth.
On this date of publication, Marc Guberti held a long position in QCOM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.