3 Stocks With Good Earnings But Very Low Valuations

These 3 stocks have good earnings prospects based on analysts' forecasts. However, their market valuations do not yet reflect the cheery outlook from the buy-side. Moreover, most of these stocks pay dividends, so you get paid to wait for the value to emerge. The three stocks are:

• Ovintiv (OVV): Denver-based oil and gas co. with forecast 33% earnings growth next year, but trades for just 4x earnings -- plus it pays a dividend with a 1.8% yield.
• Marcus & Millichap (MMI): Earnings should rise 23% next year for this real estate brokerage, but MMI stock trades for just 9.1x forward earnings.
• Sasol Limited (SSL):South African chemicals company with 15% forecast earnings growth next year, trading for just 5.7 times earnings.

These are what are known as GARP stocks (growth at a reasonable price). They have the benefit of both the value and the growth stock worlds. They have bargain prices along with good, positive earnings prospects going forward.

This is a quandary. Often the market will bid up growth stocks, especially if they have consistent and high growth prospects. But times are not normal now, as we all know. The fact that they are cheap and priced like value stocks provides a huge upside opportunity, amidst a generally falling market.

Most of these stocks pay dividends and some even buy back their own shares. This is how they return capital to investors. Just another reason to own these stocks.

Ovintiv (OVV)

This major oil and gas producer, based in Denver, CO. should see sales growth of 8% from $10.18 billion this year to $11.01 billion next year. In addition, earnings per share (EPS) is forecast to grow 33% from $10.57 per share to $14.11 in 2023.

At $56.66 Ovintiv has a forward P/E of just 4 times forward earnings for 2023. This makes it one of the most undervalued GARP stocks.

Moreover, OVV pays a $1.00 dividend annually. That puts its dividend yield at 1.76%. Moreover, there has been a dividend every year for the past 32 years. It raised it each year for the past four years.

Additionally, Ovintiv has been buying back its stock for the past two quarters. It bought $182 million in the past six months ending March 2022. On an annualized basis, that represents 2.5% of its $14.6 billion value.

Therefore, the company returns capital through a 2.5% buyback yield in addition to its 1.8% dividend yield. That gives it a 4.3% total yield.

Marcus & Millichap (MMI)

This company is a California-based real estate brokerage firm that trades very cheaply with good growth prospects. Analysts see EPS growth of 23% next year, starting from $3.74 in earnings per share (EPS) projected this year to $4.61 in 2023. 

Therefore, at $41.96, it puts MMI stock on a forward P/E multiple of just 9.1x.

Moreover, MMI pays a semi-annual dividend of 25 cents. That gives it a decent dividend yield of 1.19% (i.e., $0.50/$41.96). However, it also paid out a special dividend of $1 per share, giving MMI stock an extra yield of 2.4%. That could raise the yield to over 3.5% annually.

Remember, though, there is no guarantee MMI will keep paying the special dividend, as it has in the past. So, this GARP stock has 23% growth prospect, at just 9x, with a potential 3.5% yield. That makes it an attractive GARP stock.

Sasol Limited (SSL)

Sasol is a South African integrated chemical and energy company, based in Johannesburg. Its exploration and production locations are in Mozambique, South Africa, Canada, and Gabon.

Analysts expect EPS could rise 15% next year from $3.96 (June 30, 2022 year), to $4.54 in June 2023. Therefore, At $26.32, SSL stock trades on a forward P/E multiple of 5.8 times.

That low valuation probably undervalues its 15% growth prospects, making it a valuable GARP stock.