7 Cheap Stocks That Wall Street Analysts Still Love

As of yesterday’s close, the S&P 500 had tumbled more than 25% in 2022. This year will be one of the worst for the S&P ever. While it’s not easy putting money into the markets when investors’ sentiment is so negative, there are still many cheap stocks that analysts love.

Whether you have the nerve to buy these shares is another story altogether. There’s no shame in sitting on cash at this point

For those who aren’t running away from the market, however, I’m looking at the stocks of companies that have solid balance sheets, are very profitable, and have received average ratings of “overweight” or “buy”  from analysts.

You’ll notice that some very familiar names and a number of lesser-known companies are included in my list. All seven of them can make big comebacks in 2023.

Boot Barn Holdings (BOOT)

Boot Barn Holdings (NYSE:BOOT) has gotten crushed in 2022. Its stock is down more than 53% in 2022. However, over the past five years, it’s up more than 650%. Of the 12 analysts covering BOOT stock, 11 rate it either “buy” or “overweight,” with only one “hold.”

So we have a beaten-down stock that is popular with analysts, but a recession is probably looming on the horizon, according to Jamie Dimon, the CEO of JPMorgan Chase & Co. (NYSE:JPM). That will undoubtedly affect Boot Barn. 

In early January, I selected Boot Barn and six other stocks I thought could double for a second consecutive year. Of course, I had no idea that the markets would do so terribly in 2022. 

However, the company’s growth outlook remains intact. In Q1 of fiscal 2023, Boot Barn’s revenues increased 19.4% over the previous year, with a 10% increase in same-store sales. For all of FY23, it expects to open 40 new stores and grow its sales by at least 12.9% to $1.68 billion. On the bottom line, it expects earnings per share of at least $6.00.

Based on its guidance for 2022, BOOT trades at a cheap one time its  forward sales and 9.6 times its forward earnings.

Alphabet (GOOGL,GOOG)

According to those who are bearish about Alphabet (NASDAQ:GOOGL, GOOGL), the big issue  for the company is Google’s ad revenues. The bears feel that a recession will severely dent those revenues.

The counterargument is that companies will be forced to double down on their advertising during a recession to maintain their growth. The markets have factored in a slowdown in Google’s ad revenues, which is why GOOG stock is down more than 30% in 2022.

However, what if the ad slowdown doesn’t materialize? Because that’s a possibility, the risk/reward proposition of the stock is worthwhile, especially since Alphabet generated $65.2 billion of free cash flow (FCF) in the 12 months that ended in June. That makes GOOG the type of financially sound company you want to own if a recession rears its ugly head. 

Over the past five years, it’s up more than 95% versus a 42% gain for the S&P 500. Of the 49 analysts who cover GOOGL stock, 45 rate it either a “buy” or an “overweight,” with only four “holds.” Their average price target for the shares is $140.84, 45% higher than where it’s currently trading.

Its price-sales ratio is 4.71 times, lower than it has been at any time in the past five years. By every metric, the shares are cheaper than they’ve been in years.

MaxLinear (MXL)

MaxLinear (NASDAQ:MXL) is the only name in this article that I was not previously familiar with. Founded in 2003, the Calif0rnia-based company provides systems-on-chip (SoC) solutions for use in broadband,  wireline infrastructure, data centers, industrial projects, and more. 

Its September 2022 presentation points out that it continues to execute its plan to deliver profitable growth for shareholders. 

Since the company went public in 2010 at $14, its shares are up over 130%. However, over the same period, its revenues have grown from $51.4 million in 2009 to $892 million in 2021. And it’s gone from an operating profit of $4.6 million in 2009 to $67.5 million in 2021

Of the 12 analysts covering MXL, 11 rate it “buy” or” overweight,” and their average price target is $58.00, significantly higher than its current share price. For 2023, analysts’ average estimate calls for MaxLinear to earn $4.25. That works out to a price-earnings ratio of 7.7, which is very cheap for a company whose sales and earnings are growing by high- double-digit percentages.

It’s an excellent long-term buy. 

Alaska Air Group (ALK)

Alaska Air Group (NYSE:ALK) reported record-breaking second-quarter 2022 results, which included $2.7 billion of revenues, 79% higher than the same period a year earlier. ALK’s load factor — defined as the number of seats it sells versus those available — came in at a record 88%, 11.1 percentage points higher than a year earlier. Anytime an airline’s load factor gets above 80%, its business generally makes money on its flights. 

In Q2, Alaska had net income, excluding some items, of $280 million, considerably better than its $38 million net loss during the same period a year earlier. It finished Q2 with $3.4 billion of cash and marketable securities on its balance sheet and net debt, excluding some items, of just $657 million. The latter figure is a low 13% of its market capitalization. 

Of the 13 analysts who cover its stock, 12 rate it a “buy” or an “overweight,” with an average target price of $63.83, 57% higher than where it’s currently trading.

Lumentum Holdings (LITE)

I included Lumentum Holdings (NASDAQ:LITE) in my September column about tech stocks to buy with superior fundamentals. The maker of optical and photonics products had delivered excellent fiscal Q4 results only two weeks earlier that included EPS of 49 cents,  28 cents above the average analysts’ EPS estimate of 21 cents.

Its stock has lost 26% of its value since it reported its Q4 results. 

As I said in my column, investors weren’t impressed with its Q1 guidance. LITE doesn’t report its fiscal Q1 results until some time  next month. As a result, investors have time to think about whether they want to make a long-term commitment to the company’s shares.

But of the 15 analysts covering its stock, 14 rate it a “buy” or an “overweight,” with an average price target of $109.57. 

Their average estimate for Lumentum’s FY23 EPS is $6.53 , and the mean outlook calls for EPS of $7.80 in FY24. Based on these estimates, its share price is trading at 10.9 times its forward earnings.

EPAM Systems (EPAM)

EPAM Systems (NYSE:EPAM) is a technology company that provides engineering services for software development companies and digital platforms. I happened to see an article recently which suggested that the company’s capital allocation policies are excellent for shareholders. 

It’s impossible for companies to have shareholder-friendly capital allocation policies without generating significant free cash flow. Last year, EPAM’s FCF was $397.2 million. That’s a decent amount for a company still growing its revenues by 35% annually. 

EPAM finished Q2with $1.3 billion of cash, cash equivalents, and restricted cash. That compares to just $30.2 million of long-term debt. Its balance sheet is rock solid. 

In terms of profitability, the company’s Q2 net income was $177.5 million, 14.4% higher than in Q2 of 2021. 

Demonstrating EPAM’s growth, the company finished Q2 with 61,300 employees. When it went public in 2012, it had 8,125 employees. 

That’s very impressive growth indeed.

R1 RCM (RCM)

R1 RCM (NASDAQ:RCM) helps hospitals, physicians, and other healthcare providers manage their revenues in their front, middle, and back offices. It has more than 900 clients across the U.S., serving over 27,000 healthcare providers. 

The company wasn’t always in such good shape. It got a $200 million infusion from Ascension, the largest Catholic healthcare system, and private equity firm TowerBrook Capital Partners in December 2015. At the time, it was called Accretive Health, and it lost  $136 million from $117 million in revenue in 2015.  

In January 2017, it became R1 RCM, taking the R1 Performance Stack to a broader customer base. In Q2 2022, its EBITDA (earnings before interest, taxes, depreciation and amortization), excluding certain items, was $87.2 million. For all of 2022, it expects adjusted EBITDA of $475 million at the midpoint of its guidance from $1.86 billion in revenue.

The company is so strong that it announced in mid-September that Ascension and TowerBrook were selling 15 million shares of RCM stock. After the sale, they owned 35.9% of the company.    

The future looks bright for RCM. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.