Disclaimer: This is not a Halal Stock Advisor pick. The information is up-to-date as of publishing date. We encourage you to consult the latest financial reports and conduct thorough research before making any investment decisions, as the status of stocks can fluctuate.
Introduction
Navigating the stock market with Shariah compliance in mind adds a layer to the investment process but certainly doesn’t prevent finding undervalued stocks. This article highlights three such stocks that not only show potential for growth but also adhere to Islamic financial principles. Muslim Xchange aims to empower Muslim investors to make informed, ethical investment decisions using our investment tools and analysis.
Understanding Valuation: Beyond RSI
While the Relative Strength Index (RSI) is a commonly used tool to gauge undervalued stocks, we prefer the Williams Percent Range (Williams %R) for analysis. Unlike RSI, which measures the velocity of price movements, Williams %R provides a deeper insight by comparing the closing price of a stock to its high-low range over a selected period. This helps in identifying overbought or oversold conditions with greater precision. Here’s a quick breakdown of what the Williams %R readings indicate:
Above -20: Typically indicates an overvalued stock.
Between -50 and -20: Suggests a stock is somewhat overvalued.
Between -80 and -50: Points to potential undervaluation.
Below -80: Strongly suggests a stock is undervalued.
Ensuring Shariah Compliance with the Muslim Xchange Screener
The cornerstone of our stock selection is the Muslim Xchange screener. This tool rigorously evaluates stocks against five major Shariah compliance standards. For our purposes, we only consider stocks that meet at least three out of these five standards. Notably, all chosen stocks also meet the requirements of the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions), providing an additional layer of assurance for investors.
1. Lululemon Athletica (LULU)
- Market Capitalization: $35.03B
- Compliance: Passes all 5 standards screened against
(Source: Muslim Xchange screener)
- Williams Percentage: -98.57
Lululemon Athletica continues to impress with its consistent earnings and significant expansion in key markets, such as China. Following a recent dip in stock prices, the company’s innovative approach to product lines and strategic market positioning underscore its potential for sustained growth. Lululemon’s consistent performance makes it an interesting subject for those seeking growth.
2. Estee Lauder (EL)
- Market Capitalization: $35.56B
- Compliance: Passes 3 of 5 standards screened against
(Source: MuslimXchange screener)
- Williams Percentage: -92.39
Estee Lauder has faced significant challenges, particularly in its expansion efforts in China post-Covid-19. Despite these hurdles, the company’s valuation remains at levels seen back in 2017. This unchanged valuation, despite substantial changes over seven years, suggests that the stock might be undervalued.
3. BellRing Brands (BRBR)
- Market Capitalization: $9.68B
- Compliance: Passes 3 of 5 standards screened against
(Source: MuslimXchange screener)
- Williams Percentage: -98.38
BellRing Brands, known for its Premier Protein products, stands out in the nutrition sector with its consistent profitability and return on capital. The company has expanded its market, driving significant revenue growth. With a strong focus on innovation and market adaptation, BellRing Brands offers a compelling reason for why they can come back from their recent 20% tumble.
Conclusion
Identifying Shariah-compliant undervalued stocks like Lululemon Athletica, Estee Lauder, and BellRing Brands can help Muslim investors grow their wealth while adhering to Islamic principles. By leveraging tools like the Muslim Xchange screener and Williams %R analysis, investors can make informed, ethical decisions. Always remember to conduct thorough research and stay updated with the latest financial reports before making any investment decisions.
Responses
EL is zionist
But EL is zionist