These 2 stocks are undervalued according to analysts and are thus a clear buy

Two hidden diamonds waiting to be discovered? Morningstar analysts have identified two stocks that are undervalued and poised to grow and reward shareholders. According to Morningstar, there are compelling reasons why both stocks should increase their value significantly in the coming months and years.

One stock is benefiting from the industry's recovery, while the other is finally shedding some of the external impediments to growth and focusing on improving efficiency. Although both stocks have experienced downturns in the past, Morningstar believes that better times are ahead. Now is a good time to buy before their prices rise. Let's take a look at them 👇

Verizon $VZ+0.4%

Verizon

$40.09

$0.14

+0.35%

Capital Structure

Market Cap

168.7B

Enterpr. Val.

339.3B

Valuation

P/E

15.1

P/S

1.3

Open $39.90

Day range $39.65 - $40.17

52 week range $30.14 - $43.42

Verizon was founded in 2000 by the merger of two large telecommunications companies, Bell Atlantic and GTE. Since then, Verizon has become a dominant force in the US telecommunications market.

Verizon has always built on the strength and quality of its mobile network. Back in 2002, Verizon launched its 3G mobile network and has been continuously improving and expanding the network ever since. Today, Verizon has by far the most extensive and fastest 4G LTE network that covers most of the US. In addition, this network allows Verizon to offer the best mobile service and charge premium prices.

As the network has grown, so has Verizon's portfolio of services. It started with voice services, then added internet and TV. Today, Verizon offers a broad portfolio of voice, data, and video services to customers of all types-from consumers to small businesses to large corporations.

Because of the quality of its services, Verizon has built a very loyal customer base that generates stable and predictable cash flows. This allows Verizon to increase its dividend on a regular basis.

Verizon is a true defensive leader in the telecommunications market. With its strong network, broad portfolio of services and loyal customers, it has built a dominant position and a stable business that generates attractive long-term returns for shareholders.

Verizon has stable and predictable revenues that have grown in the range of 1-3% per year over the past 5 years. Over the past year, revenue has grown 3% to nearly $137 billion. Growth is driven primarily by the consumer segment, where revenues from mobile data and Fios services are growing. The enterprise segment is growing more slowly.

Verizon's gross profit is growing steadily at 1-3% per year, which is in line with revenue growth. Verizon is able to keep gross margin stable due to price controls and lower content costs. Operating expenses are growing slightly faster, which is reducing operating profit. It fell 6% last year to USD 30.5 billion. Overall, Verizon's net profit is growing slightly, up 3% last year to USD 28.3 billion.

Morningstar analysts say:

Verizon is a unique stock in an ultra-stable industry. It's a 4-star stock with a wide economic moat and trades at about a 12% discount to our fair value. The dividend yield is 5.5% and the company has a great history of dividend growth. We also focus on stable cash flow from operations, which supports the dividend.
And at this time, we view Verizon as a stock that provides good shelter in times of market uncertainty and volatility. And that's where you really get a good combination of growth and stability with yield. Looking forward, we expect very stable revenue, profitability and dividend increases in the lower single-digit range.

Nike $NKE+1.6%

Nike

NKE

$72.56

$1.15

+1.61%

Capital Structure

Market Cap

109.5B

Enterpr. Val.

111.6B

Valuation

P/E

19.5

P/S

2.1

Open $72.00

Day range $71.87 - $72.77

52 week range $70.91 - $123.39

Nike is the world's largest company in designing, developing, manufacturing, marketing and selling athletic footwear, apparel and accessories.

Nike's story began in 1964 when Bill Bowerman and Phil Knight founded Blue Ribbon Sports with a focus on footwear for runners. 11 years later, the company was renamed Nike and has been growing ever since. Nike has always built on innovation to help athletes achieve peak performance.

Nike's key competitive advantages include:

-Strong brand - Nike is one of the most recognizable and valuable brands in the world. This allows it to charge premium prices and increase sales.

-Innovation - Nike continually invests in new product development.

-Marketing - Nike is a master of marketing. Its campaigns focus on connecting emotionally with customers and reaching out to athletes of all levels, you may have noticed this before.

-Distribution - Nike products are distributed in a wide network of retail stores around the world as well as through its own stores and Nike.com.

Nike's sales have been growing steadily at around 5-7% per year, up 8% over the past year to a record $51 billion. Growth is primarily driven by direct-to-consumer sales (+11%) and North America (+9%).

Nike's gross profit is growing steadily at 5-10% per year, more than sales. Nike keeps gross margin stable due to higher prices, better inventory management, and lower discounts.
Nike's operating expenses are growing at a similar rate to sales, around 5-10% per year. Growth is driven by higher advertising and marketing costs and investment in digital transformation. Operating profit is thus growing steadily in the range of 3-7% per year. Profitability (ROE) is back in the 30-35% range after the pandemic, which is solid.

Morningstar analysts say:

Nike is essentially the dominant brand in global athletic footwear and apparel. It's a 4-star stock with a wide economic sea. It trades at about a 9% premium to our fair value, but we still find it interesting.
Over the long term, we think the company still has very good prospects for sustainable growth. In a global market with increased interest in healthy lifestyles, working out, and the like, Nike is very well positioned to benefit from this, and the company is successfully investing in direct-to-consumer sales, digital experiences, and personalized products.
Part of what bothers us in the short term is that some investors are concerned about higher shipping costs that could depress earnings. But we think brand growth for the company's long-term performance really prevails. So while the price may not be great right away, we think Nike still remains one of our favorite long-term growth investments in the broader retail sector.