2 Overlooked Stocks

Today we're covering two fundamentally sound stocks our analysts think are undervalued.

We view the risk/reward proposition of Molson Coors as incredibly enticing. The momentum in the shares was tripped up by disappointing fourth-quarter earnings, where results were tainted by renewed lockdowns in key European markets. In our view, the market's single-minded focus has presented an opportunity for patient, fundamentals-oriented investors. Management has little control over outside factors like coronavirus breakouts, and we think the firm is doing a good job in the areas where it does have some control. We believe the market continues to price in worse-than-mediocre marketplace performance into perpetuity. The firm is certainly a lower-quality play relative to other alcoholic beverage companies under our coverage. Still, there are remnants of competitive advantage that it enjoys, including meaningful scale and distribution breadth, and we believe its investments in innovation and growth-oriented partnerships will start to balance the structural headwinds in its legacy business over the long term. We think shares are worth $60.

In our view, Roper Technologies is the highest-quality name among the larger U.S. multi-industry firms we cover. Management has developed a laserlike focus on acquiring cash-accretive businesses purchased at reasonable valuations. This dynamic, combined with Roper's decentralized culture that cedes operational control to best-in-class, specialized managers, are why we think Roper's runway for success will continue. Finally, Roper is fortunate to own businesses that gush cash and enjoy large amounts of deferred revenue. Many niche software businesses benefit from this dynamic because customers pay cash for services far in advance of when services are rendered. These asset-light, recurring sources of revenue are protected by strong moat sources, including switching costs and network effects, that grow at midsingle digits over the long term. While Roper will have to deleverage in 2021 and the stock will likely face strong pricing headwinds amid rising interest rates, long-term investors have an opportunity to acquire an interest in a well-run, strong company. We think shares are worth $452.

Analysts Nicholas Johnson and Josh Aguilar provided the research behind this segment.