The first half of 2024 has been all about artificial intelligence (AI), with tech giants like Nvidia (NVDA) continuing to dominate the spotlight. In fact, the generative AI market has surpassed $66 billion, with OpenAI and Meta AI commanding a 56% market share.
Companies like Nvidia have seen their market values skyrocket, driven by their pivotal roles in AI technology. For instance, Nvidia's market value surged from approximately $300 billion at the end of 2022 to north of $3 trillion, and notably surpassed Apple (AAPL) and Microsoft (MSFT) as the most valuable public company in the U.S.
This singular focus on AI-centric companies, such as Nvidia and other "pick-and-shovel" plays, means investors have been neglecting quite a few high-quality stocks that are quietly integrating AI to drive growth and efficiency. For discerning investors, this presents a unique opportunity to scoop up these overlooked gems.
Three such under-the-radar stocks that deserve a closer look at current levels are UnitedHealth Group (UNH), Oracle (ORCL), and Deere & Company (DE), according to portfolio manager Dan Eye. Although these names may not be the first that come to mind when thinking about AI, they are all leveraging the technology in meaningful ways to drive efficiency and growth. Let's dive in to see their potential as overlooked gems in an AI-focused market.
#1. UnitedHealth Group: The Overlooked Healthcare Giant
Valued at $445 billion, UnitedHealth Group (UNH) is a major player in the healthcare industry, operating through four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx. These segments offer a range of services from health benefits and wellness care to data analytics and pharmacy services.
UNH stock has underperformed over the past year amid the market's preference for Big Tech and AI-powered plays, up just 1.2% over the last 52 weeks. On a YTD basis, UNH is down 7.9%.
While this performance might seem underwhelming at first glance, it's important to consider the broader context. The insurance industry has faced challenges in 2024, and UNH in particular was hit with a cyberattack. Overall, valued at a forward P/E ratio of 17.48 and 1.12x sales, the stock seems reasonably priced at current levels.
UNH also offers a stable dividend yield of 1.73%, with the most recent payment totaling $2.10 per share. UnitedHealth has consistently paid dividends for 34 years, and the insurance giant has grown those dividends for over a decade - making it a reliable income source for investors.
In its latest earnings report, UnitedHealth posted first-quarter revenues of $99.8 billion, up nearly 9% from the year-ago period. Adjusted earnings were $6.91 per share, despite a $0.74 per share hit from the cyberattack on its Change Healthcare unit. The company has updated its full-year net earnings outlook to $17.60-$18.20 per share.
UnitedHealth Group has been actively investing in expanding its services. For instance, UnitedHealthcare Community and the State of Iowa have invested $1.5 million in school-based telehealth to expand access to mental health care for K-12 students in Iowa. Additionally, UnitedHealthcare Community Plan of Kansas has been selected by the State of Kansas to administer KanCare, the statewide Medicaid and Children’s Health Insurance Program, effective January 1, 2025.
Analysts are bullish, with a consensus “strong buy” rating on UNH stock. Overall, 20 out of 23 analysts suggest a “strong buy,” 2 recommend a “moderate buy,” and 1 says it's a “hold.”
The mean target price for UNH stands at $580, indicating a 19.3% upside from the stock's current price.
#2. Oracle Corporation: Cloud and AI Potential Unleashed
Oracle Corporation (ORCL) is a global tech powerhouse known for its software, cloud services, and hardware products. The company blends subscription-based and traditional sales models to cater to a wide range of customers.
With a market cap of $383 billion, ORCL stock is up 32.8% so far in 2023, and trading not far from its 52-week high of $145.32. For income investors, Oracle pays a dividend of $0.40 each quarter, yielding 1.15%.
When it comes to valuation, Oracle's looking a tad pricey compared to its peers. It's sporting a forward P/E ratio of about 22.2 and a price/sales of 6.6, which is richer than its historical averages. However, as the tech giant leverages AI for growth, some might argue the premium is justified, given Oracle's strong position in the enterprise software space and its growing cloud business.
In Q4 of fiscal 2024, Oracle reported $14.29 billion in revenue, a 3% year-over-year increase. Adjusted EPS was $1.63, just shy of the expected $1.65. Cloud services and license support revenue grew 9% to $10.23 billion, while cloud infrastructure revenue jumped 42% to $2.0 billion. For Q1 2025, Oracle expects EPS between $1.31 and $1.35, with 5% to 7% revenue growth.
Oracle is investing over $1 billion in AI and cloud computing in Spain, including a new cloud region in Madrid. This move aims to meet growing demand and support regulatory compliance. Additionally, Oracle has formed a groundbreaking multicloud partnership with Google Cloud, enhancing its cloud infrastructure offerings and simplifying cloud migration for customers.
Analysts are optimistic on ORCL stock, with 17 out of 29 recommending a “strong buy” and 12 suggesting a “hold.” The mean target price is $147.49, indicating a potential 5.4% upside from the current price.
#3. Deere & Company: Precision Agriculture's AI Future
Deere & Company (DE), also known as John Deere, is a top manufacturer of agricultural, construction, and forestry machinery. Mainly operating through 3 segments - Agriculture & Turf, Construction & Forestry, and Financial Services - Deere focuses on innovative, high-quality equipment and technology to boost productivity and efficiency.
DE stock has been quite volatile in sympathy with crop prices this year, and is down 6.9% in 2024. At current levels, DE's quarterly dividend of $1.47 per share translates to a yield of 1.59%.
In light of the stock's tepid price action, Deere's forward P/E ratio of 14.48 and P/S ratio of 2.20 suggest it's attractively valued right now relative to historical premiums.
DE recently reported its fiscal Q2 2024 results, and they beat expectations, despite some challenges. Deere booked net income of $2.370 billion, or $8.53 per share, which was down from $2.86 billion, or $9.65 per share, in the same quarter last year. Revenue came in at $15.24 billion, down 12% year-over-year.
The company's facing some headwinds due to softening demand in the agricultural sector, while construction markets remain stable. As a result, management lowered their full-year net income forecast to approximately $7.0 billion.
Recently, Deere announced a major product launch at the Commodity Classic tradeshow, introducing new equipment for model year 2025. Highlights include autonomy-ready, high-horsepower 9RX series tractors, and AI-enabled See & Spray Premium weed sensing technology. These innovations show Deere's dedication to using AI and automation to improve agricultural productivity.
Analysts are generally optimistic, with 14 out of 24 recommending a “strong buy,” 1 suggesting a “moderate buy,” and 9 suggesting a “hold.” The mean target price is $429.09, indicating a potential upside of about 15.3% from the current price.
Conclusion
With all the buzz around AI, it's easy to overlook high-quality stocks like UnitedHealth Group, Oracle Corporation, and Deere & Company - even though these companies not only offer solid fundamentals and regular dividend payments, but also stand to benefit from leveraging AI advancements in their respective fields. However, by diversifying your portfolio to include these overlooked gems, you can balance the high-growth potential of AI with the stability and proven performance of established industry leaders, too.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
