Grab These 3 Stock Bargains Before They Soar Higher

After a down month in September, the SPDR 500 ETF (SPY) is up 2.3% for October, with some stocks recovering their losses from last month. But there are still plenty of bargains to be had, and I've found three great companies trading at very attractive prices. While some stocks trade below their intrinsic values due to reasons such as their industry outlooks or company-specific issues, these stocks are just not being recognized by a market dominated by big tech stocks.

When looking for undervalued companies, you want to make sure you're not just looking at prices. It's easy to get sucked into a potential investment simply due to a low price. Some companies are trading at low multiples because they are poor investments. In addition to value price, you should also focus on companies with strong fundamentals and future growth potential.

There are many ways to value stocks, but the most common is the Price/Earnings (P/E) ratio. So, I screened for stocks with a trailing P/E below 20 and a forward P/E below 15. I also made sure the companies were profitable and offered the potential for growth based on their current circumstances. The following three stocks fit the bill: D.R. Horton (DHI), Big Lots (BIG), and Group 1 Automotive (GPI).

D.R. Horton (DHI) 

DHI is a leading homebuilder in the United States with operations in 90 markets across 29 states. The company mainly builds single-family detached homes and offers products to entry-level buyers. 

The company has benefited from the booming housing market and the Fed's near-zero interest rate policy. As it is not only the largest homebuilder in the country, it is also the most diversified, so investors don't need to worry about geographic housing risks.

I believe that the strong housing market will continue, and DHI should benefit from its focus on affordable, entry level homes. The pandemic has altered consumer buying behavior to favor building high volume, affordable entry-level homes. This is due to a shift from city rentals by millennials to single-family homes.

DHI has a trailing P/E of 13.3 and a forward P/E of 10.8, making it attractive at its current price. The stock is rated a "Strong Buy" by our POWR Ratings system. It has a grade of "A" for Trade Grade and Buy & Hold Grade, and a "B" for Industry Rank. These are three out of the four components that make up the POWR Ratings. DHI is also ranked #1 out of 21 stocks in the Homebuilders industry.

Big Lots (BIG) 

BIG is a retail company that operates discount retail stores. The stores sell various items, including housewares, furniture, consumables, merchandise, electronics, and other items. It has more than 1,400 stores across 47 states. You would expect the pandemic to affect the company with its retail presence, but that hasn't been the case. The company had the best second quarter in its history, with a record increase in revenues.

The company kept its stores and distribution centers open. Its omnichannel presence offered flexibility to shoppers. Its lower pricing was perfect for consumers whose budgets have been constrained by the pandemic. That gives BIG a competitive advantage in the current climate due to its products being lower priced. The stock was one of few discretionary stocks to post positive performance in the last recession in 2008. 

Management recently raised its third-quarter earnings guidance due to strong sales growth. BIG should also benefit from its Operation North Star initiative that focuses on top-line growth, cost containment, and technological enhancement, including expanding its e-commerce platform.

BIG has an absurdly low trailing P/E of 2.9 and a forward P/E of 8.6. In my opinion, this company is considerably undervalued. The stock is rated a "Strong Buy" in our POWR ratings system, with a grade of "A" in Trade Grade, Buy & Hold Grade, and Industry Rank. It also holds a grade of "B" for Industry Rank.

Group 1 Automotive (GPI)

GPI owns and operates over 185 automotive dealerships, 242 franchises, and 49 collision service centers in the U.S., U.K., and Brazil. While the pandemic initially hit the auto industry hard, new vehicles' demand has been rebounding considerably. 

Management recently released preliminary third-quarter results where it expects adjusted earnings per share to come in between $6.40 to $6.80 a share. This estimate is well above the consensus analyst estimate of $3.73 per share.

The company also announced a $200 million share repurchase program and expects to reinstate its quarterly dividend next month. Management has also implemented a series of initiatives to drive long-term growth in its used vehicle and service departments. GPI's is also making an effort to expand its omnichannel platform to boost sales.

GPI has a higher trailing P/E ratio than the other stocks on this list, but still relatively low at 17.2. Its forward P/E is even lower at 8.6. This valuation is highly attractive at its current level, especially for a company that has beaten earnings estimates in 11 of the past 12 quarters. 

The stock is rated a "Strong Buy" in our POWR Ratings system. It holds a grade of "A" in three out of the four POWR components, including Trade Grade, Buy & Hold Grade, and Peer Grade. The stock is also ranked #7 in the Auto Dealers & Rentals industry. Keep a close on GPI next week, as the stock reports its latest quarterly results on October 29th.

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DHI shares . Year-to-date, DHI has gained 39.87%, versus a 8.01% rise in the benchmark S&P 500 index during the same period.

David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a Consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.

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