If you’re looking for cheap Nasdaq stocks to buy now, you’ve come to the right place. Granted the index’s outperformance in 2023, up 17% year to date, makes finding value a bit trickier. But there are still a few names that look relatively cheap.
To come up with my list of the three most undervalued Nasdaq stocks to buy in May 2023, I looked at the profile of an average stock held by two Nasdaq-related ETFs: The Fidelity NASDAQ Composite Index ETF (NASDAQ:ONEQ) and the Invesco NASDAQ 100 ETF (NASDAQ:QQQM). The former tracks the performance of the Nasdaq Composite Index, while the latter holds the top 100 Nasdaq-listed non-financial stocks.
ONEX has an average price-to-earnings (P/E) and price-to-sales (P/S) ratio of 22.9 and 2.9, respectively. Meanwhile, QQQM’s average P/E and P/S ratios are 24.9 and 3.6, respectively. Averaging the two ETFs, I looked for Nasdaq stocks with a P/E of less than 23.9 and a P/S of 3.3 or less.
To ensure the stocks were a decent size, I excluded those with a market capitalization of less than $2 billion. That left me with 667 options. Next, I filtered out the ones that didn’t meet the P/E and P/S criteria, and I got 176 names, give or take. To go one step further, I excluded businesses with a gross margin of less than 50%, bringing my field of opportunities to a manageable 45.
After reviewing those, I landed on the following three names for the best cheap Nasdaq stocks to buy now.
| SIRI | Sirius XM | $3.73 |
| LPLA | LPL Financial | $190.82 |
| CG | Carlyle Group | $26.70 |
Sirius XM (SIRI)
Sirius XM (NASDAQ:SIRI) is down 44% over the past five years. It hasn’t traded this low since February 2016. The last time it traded over $10 for any length of time was in 2001. However, if you’re a value investor with a bit of an income bent, the satellite radio provider is a good play at current prices with a dividend yield of 2.6%.
SIRI reported first-quarter results on April 28. While revenue and adjusted EBITDA missed estimates, management increased its full-year guidance for adjusted EBITDA and free cash flow (FCF). The company now expects adjusted EBITDA of $2.75 billion and free cash flow of $1.1 billion, as well as $9 billion in revenue.
Based on its FCF guidance for the year, SIRI currently has an FCF yield of 7.6%. I consider anything above 8% to be solidly in value territory. Additionally, SIRI’s P/E of 12.4 and P/S of 1.6 are well below the stock’s five-year average multiples.
So, what’s the most significant risk in buying SIRI? Sirius lost 347,000 self-pay subscribers in the first quarter while advertising revenue declined 2.1% to $375 million. If this trend continues, it will be tough to find support for its sagging share price. But, at current levels, aggressive investors ought to be all over this one.
LPL Financial (LPLA)
LPL Financial (NASDAQ:LPLA) is a San Diego-based independent broker-dealer and investment advisory with more than 21,000 financial advisors across the U.S. It provides front-, middle- and back-office support to these advisors. At the end of March, its total advisory and brokerage assets served stood at $1.2 trillion.
LPL makes money from a small portion of the fees and commissions its advisors charge their clients. In addition, it generates revenue from advisors using its technology, custody, clearing, trust and reporting platforms. In other words, it makes a little from a lot of advisors. And the best part is that it is business model agnostic, which means it doesn’t care how advisors structure their businesses. Instead, it is merely a conduit to their success.
For the first quarter, the company generated $2.42 billion in revenue, 17% higher than a year earlier and 4% higher than the previous quarter. On the bottom line, it earned net income of $339 million, 153% higher than a year earlier and 6% above Q4 2022.
In Q1, it added $21 billion in net new assets, an annualized organic growth rate of 7.5%. Over the past 12 months, it added $99 billion in net new assets for 9% organic growth.
In addition to organic growth, it uses acquisitions to increase the number of advisors using its products and services. It recently made two strategic acquisitions for around $150 million.
LPL’s current earnings yield of 7.2% is the highest it’s been in the past decade
Carlyle Group (CG)
It has been a challenging 12 months for private equity firm Carlyle Group (NASDAQ:CG), which is reflected in the stock’s 34% decline.
In August, Chief Executive Officer (CEO) Kewsong Lee abruptly stepped down as the firm’s leader, a few months before his five-year contract was set to end. Lee is said to have asked for a $300 million pay package over the next five years. The company’s co-founders reportedly balked at the amount, so Lee quit.
Six months later, Carlyle appointed former Goldman Sachs (NYSE:GS) executive Harvey Schwartz as its new CEO. On May 4, Carlyle reported its first quarterly report under Schwartz. Unfortunately, it wasn’t a winner. Distributable earnings fell 10.3% from a year earlier to $271.6 million, while after-tax distributable earnings of 63 cents per share were 6 cents below analysts’ average forecast.
“Let me be clear. We’re not pleased with our first-quarter results” Schwartz stated on Carlyle’s Q1 conference call.
What Schwartz has said about why he took the job in the first place should provide shareholders with some hope, though. As the Financial Times reported:
“When I looked at the valuation gap between our firm and other firms, it just didn’t make any sense to me,” said Schwartz of his early talks with Carlyle’s founders David Rubenstein and William Conway about becoming the New York and Washington-based investment group’s new leader.
“I just knew that it screamed opportunity because I know the power of the brand,” added Schwartz.
Finally, Carlyle has a five-year average earnings yield of 9.3%.
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.