Sleeper stocks represent companies that fly under the radar or are ignored by the market.
It’s not uncommon to find quality stocks in an ocean of listed stocks. And, temporary headwinds could discourage investors, making them shy away from potentially long-term multibaggers.
Sleeper stock investment advantage is the trading at a valuation gap. Value investing is the surest way of beating the markets on a consistent basis. Of course, being under the radar might imply that investors need to buy and patiently wait for the rally. However, when the upside comes, it compensates for the time and price corrections.
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Therefore, let’s discuss three breakout stocks likely to surprise in the next 12 to 24 months.
Aptiv PLC (APTV)
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Aptiv PLC (NYSE:APTV) stock has been subdued with a correction of 6% in the last 12 months. APTV looks attractive at a forward P/E ratio of 18.6.
Aptiv PLC is an automotive technology company that claims to be the leader in vehicle architecture. For Q3 of 2023, APTV reported revenue of $5.1 billion, which was higher by 7% on a year-on-year (YOY) basis. For the same period, the company reported operating cash flow of $746 million. Hence, this implies an annualized OCF potential of $3 billion.
Indeed, the operating and free cash flows may swell in the coming years. For 2024, Aptiv PLC has already guided for significant margin expansion that’s “driven by alignment to safe, green and connected megatrends.” This is a key catalyst for APTV stock upside.
And, for the last financial year, the company reported order booking of $32 billion. For the first nine months of 2023, order booking stands at $27 billion. Also, an increase in order intake indicates potential growth acceleration.
Amcor PLC (AMCR)
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Amcor PLC (NYSE:AMCR) is trading at a valuation gap. Besides the forward price-earnings ratio of 14, AMCR stock offers a dividend yield of 5.2%. After a correction of 18% for year to date (YTD), I expect this undervalued stock to trend higher and deliver healthy total returns.
Amcor PLC sells packaging products in Europe, North America, Latin America, and Asia. For Q1 of 2024, the company reported a 6% decline in sales to $3.4 billion. However, it has already guided for return to growth in the year’s second half.
Additionally, AMCR is focusing on higher value product categories, which will also boost margins. Further, the company expects presence in 25 emerging markets to drive growth. Impressively, Amcor PLC invests $100 million annually in research and development. Introduction of innovative packaging products (sustainable packaging) is likely to be another growth catalyst. With these long-term tailwinds, it’s easy to be bullish on AMCR stock at current valuations.
Leonardo DRS (DRS)
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Lastly, Leonardo DRS (NASDAQ:DRS) is largely unnoticed but it could be a multibagger in the making.
The first reason to be bullish is that the company is in the defense sector. Specifically, Leonardo DRS has a differentiated product offering, providing defense electronic products and systems. Therefore, positive industry tailwinds will sustain through the decade.
Notably, DRS reported an order backlog off $4.7 billion for Q3 of 2023, with a swelling backlog of 50% YOY. Clearly, this indicates the company’s products are gaining traction in demand. And, as the backlog increases, expect healthy revenue and cash flow growth.
Also, Leonardo DRS seems to be on the forefront of innovation, which is another long-term growth catalyst. Recently, the company received an order for the continued production of its next-generation thermal weapon sights for the U.S. Army.
On the date of publication, Faisal Humayun did not hold (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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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