The 7 Most Undervalued Long-Term Stocks to Buy in January

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With 2022 in the rearview mirror, it’s time to hunt for solid, undervalued long-term stocks to buy. First, it’s essential to define what is meant by long-term. Secondly, we need to classify what makes a stock undervalued. For me, long-term is three years, at a minimum. As for undervalued, I like stocks with a high return on invested capital with high earnings yields. For those who follow Joel Greenblatt, I’m borrowing from his Magic Formula to keep it simple. 

Each of the stocks on my list will have a market capitalization of at least $500 million. Further, I’ll make sure that I’m selecting seven stocks from seven sectors. And, as we get into 2023, these may be the only seven stocks you’ll need to produce market-beating returns for your portfolio. 

LPRO
Open Lending
$8.07
DVAX
Dynavax
$11.35
LRCX
Lam Research
$473.67
ATKR
Atkore
$126.16
AMR
Alpha Metallurgical
$156.72
VGR
Vector Group
$12.46
EOG
EOG Resources
$129.46

Undervalued Long-Term Stocks: Open Lending (LPRO)

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At the top of my list of undervalued long-term stocks, Open Lending (NASDAQ:LPRO) provides risk analytics solutions to credit unions, regional banks, and non-bank auto finance companies. The company’s flagship product, the Lenders Protection Program, provides these lenders with loan analytics and other financial modeling products to ensure their auto loan portfolios remain in good standing. It could best be described as a more established automotive version of Upstart Holdings (NASDAQ:UPST), which uses artificial intelligence to help banks and financial institutions make better lending decisions.

As you can imagine in an environment of rising interest rates, Open Lending didn’t facilitate as many loans in the third quarter (42.186) as it did a year earlier (49,332). As a result, its revenues were 14% lower in Q3 2022 than a year earlier. For all of 2022, it expects to facilitate 165,000 automotive loans at the midpoint of its guidance, which translates into $185 million in revenue with an adjusted EBIDTA of $117 million.

As of Sept. 30, it had $202 million in cash on its balance sheet, which translates to $48.5 million in net cash. The company’s ROIC was 30.53%, with an earnings yield of 9.89%. If you multiply its ROIC by its earnings yield, you get 301.9. A product of 100 or more is what you want here.