Books. Makeup. Socks. Bottles of hot sauce. When it comes to stocking stuffers, Santa has many budget-friendly options. Investors in search of inexpensive stocks, on the other hand, have limited choices — at least when it comes to those stocks that have good fundamentals.

This year’s Scrooge of a market has pushed share prices below $20 for approximately 1 out of every 10 Russell 1000 companies. Unfortunately, most for good reason — mounting losses, debt-laden balance sheets, and weak outlooks.

Other names have been mainly dragged down by the tide. Their valuations are cheap and long-term growth stories intact. These are three such ‘stock-ing’ stuffers positioned for a happier new year.

Is Celestica Stock Undervalued? 

Electronic manufacturing services (EMS) provider Celestica Inc. (NYSE: CLS) is bouncing nicely off its September 2022 low. The stock gapped up in heavy volume on a better-than-expected third-quarter earnings release and has good momentum. 

The Toronto-based company is benefitting from a strategy shift towards faster-growing, more profitable end markets. Year-to-date sales and earnings are up 26% and 50% respectively largely due to increasing demand from data center and cloud storage customers. 

Celestica’s Hardware Platform Solutions (HPS) business helps computer and networking customers bring their technologies to market faster and at lower cost. Management noted that almost 70% of revenue now comes from high-value markets such as the data center space. 

Another impressive aspect of the company’s beat and raise quarter was that the operating margin expanded to a record 5.1%. Few technology companies are seeing improved profitability in this economy, let alone record margins.

It's not just about data centers and storage. As supply chain pressures ease, order flow for vehicle electrification, renewable energy and surgical instrument solutions should improve, leading to more diversified growth. At $11 a share and 10x earnings, Celestica is an ‘out of this world’ holiday bargain. 

What Will Drive a Turnaround for Viavi Solutions?

Viavi Solutions Inc. (NASDAQ: VIAV) is also trading around $11 a share — but as a result of a sharp gap down. The provider of hardware and software for the communications industry sold off earlier this month after posting softer-than-expected fiscal 2023 first-quarter sales. A 5% year-over-year sales decline showed that service providers are reducing order volumes because of the weakening macro environment. 

The silver lining is that demand will recover at some point in conjunction with economic activity. Viavi Solutions has been through rough patches before, and its longer-term track record of stable growth matters more in this situation. 

As demand normalizes, the company will have exposure to growing end markets tied to a global 5G buildout that has only just begun. Interest in its test and measurement services for fiber and wireless networks will return as business confidence improves. Additional growth opportunities in 3D sensing and currency authentication are more reasons to expect a turnaround.

With customers likely to remain cautious as the Fed rate hike cycle plays out, Viavi’s recovery could take time. This is why we saw management issue a tepid outlook and the stock get slammed to a post-pandemic low. But since the 5G growth story has a long runway, Viavi is down but far from out. Stuff this one in the stocking and check back for merry returns in a few years. 

What is AGNC Investment Corp.’s Dividend Yield?

Trading around $9, AGNC Investment Corp. (NASDAQ: AGNC) has a 15.8% forward dividend yield that seems too good to be true. Assuming it can keep up with its $0.12 per share monthly cash payouts, the built-in return will hold true.

Like most real estate investment trusts (REITs), AGNC has been crushed by rising interest rates and their impact on the U.S. housing market. And when you invest in agency mortgage-backed securities (MBS) on a leveraged basis, a double whammy hits during times of rising rates — reduced portfolio values and more expensive capital.

Thankfully, there’s a light at the end of the tunnel for AGNC in the form of better earnings. Investors got a glimpse of this in the company’s third-quarter report wherein earnings increased year-over-year and beat the consensus. 

Mortgage spreads widened during the period due to the Fed’s rate hikes and quantitative tightening (QT) plan that calls for an unwinding of its $2.7 trillion MBS portfolio. This enabled AGNC to borrow money inexpensively in the short-term repo market and earn higher returns on its MBS investments.

Going forward though, interest rate increases are bound to wind down. If AGNC effectively employs its leverage strategy, normalized mortgage spreads could also make the stock more attractive because the book value of its assets would go higher as rates come down. 

It’s a risky play given how volatile mortgage rates have been, and that’s why the stock and yield are where they are. But with AGNC trading below tangible net book value, the risks look to be priced in — and the total return potential is significant.