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The “buy low, sell high” mantra works best when investors are willing to go against the grain, and buy a stock when others are eschewing it. The trick is to spot a stock that trades at a price belied by its earnings outlook, or a fundamental development, such as a new product launch or an acquisition, is in the cards that will turn around its fortunes.
Read on for a list of our top picks among the stocks that we believe have the best potential for a rebound. Most stocks on this list are down over the past year and all of them are trading at lower valuations than their competitors. They also have relatively low price-to-earnings (P/E) ratios, which might indicate the current price is low given their earnings potential.
We believe these stocks are more likely to go up than down. On top of that, most of these stocks have a dividend that will pay you to wait until the stock price improves.
Most Undervalued Stocks to Buy in 2024
Agnico Eagle: The large-cap Canadian mining company is trading at less than 10 times earnings, well below competitors. Gold prices are expected to rise and that benefits Agnico.
Albemarle Corporation: The large-cap specialty chemicals and lithium mining company is trading at less than five times earnings. The shares have plummeted more than 55% over the past year.
BP: The oil and gas company giant, formerly known as British Petroleum, is trading at around four times earnings. BP shares are down nearly 2% over the past year.
PayPal: The large-cap fintech company is trading at around 10 times earnings, which is surprising considering its record of consistent revenue growth. The shares are down more than 19% in the past year.
Chesapeake Energy: This natural gas stock is trading well below competitors, at slightly more than two times earnings. Even so, its impending merger with Southwestern will give it greater revenue.
Tencent: The unpredictability of regulations in China have scared off many investors from the world’s largest gaming company, and as a result it’s trading at less than 13 times earnings.
General Motors: The large-cap U.S. automaker has increased its sales for six consecutive quarters but is trading at a fraction of what other car companies are.
Tapestry: The luxury accessories brands company is trading at less than 10 times earnings, well below competitors, such as Estee Lauder, Burberry or Kering SA, which owns the Gucci brand.
Everest Group: The large-cap reinsurance company is trading below eight times earnings, well below competitors, and it’s coming off a strong earnings report.
AT&T: The telecom giant has struggled for years, and now it’s trading at less than nine times earnings, and well below its top competitors. Its investment in fiber, however, seems to be paying off.
A Closer Look at the Top Undervalued Stocks to Buy in 2024
Let’s take a look at the best undervalued stocks to invest in this year:
1. Agnico Eagle – Digging Deep for Increased Profits
Agnico makes most of its revenue from the sale of gold in dore bar and concentrate form, with the rest being from the sale of other metals, such as silver, zinc and copper. If the Fed cuts rates this year, that could benefit gold stocks by putting pressure on the dollar. That would make gold cheaper for international buyers, boosting demand and potentially driving up its price. Agnico is the world’s third-largest gold producer, so an increase in the price of gold would be likely to lift its margins. That combination makes it one of the best undervalued stocks to buy right now.
Agnico Eagle focuses on brownfield expansion, that is, finding new veins near existing mines, which means less risk and more efficiency. Agnico has had 14 consecutive profitable quarters. Despite that, it is trading well below the sector average of 15 times earnings.
In the third quarter, revenue rose 13.2% from the same quarter a year earlier, to $1.643 billion, Net income was $178.6 million, or $0.36 in EPS, compared to $66.7 million or $0.15 in EPS in the same quarter of 2022. The company’s quarterly dividend is $0.40, equaling a yield of around 3.21%. It has increased that dividend by 81% over the past decade.
2. Albemarle Corporation – Oversold With Plenty of Potential
Albemarle is in the midst of a reorganization that should help it improve its margins. It said it’s cutting down on capital expenditures in 2024, expecting them to be between $1.6 billion and $1.8 billion after spending $2.1 billion in 2023. It also plans to save $95 million by trimming its workforce and cutting spending on contracted services.
In the third quarter, revenue rose 10.5% year over year, to $2.3 billion, led by increased volumes in the Energy Storage segment and higher pricing in the Ketjen segment, which develops high-quality catalysts such catalytic cracking fluid, clean, hydro-processing, organometallic, and curatives.
Net income dropped 66.3% from the same quarter a year ago to $302.5 million, mainly thanks to lower market prices for lithium, caused by oversupply and lower demand in China. However, Morningstar predicts that lithium demand will exceed 1 million metric tons in 2024 and grow to 2.5 million by 2030.
Albemarle investors can afford to be patient, because of the company’s dividend. It raised its quarterly dividend by 3.8% last year to $0.40, the 29th consecutive year of increases. The yield on the dividend is around 1.3% and the payout ratio is only around 15.5%, leaving room for continued increases.
The company has renewed its focus on oil and gas exploration, slowing down its goals of hydrocarbon reduction that concerned investors. New CEO Murray Auchincloss was one of the company’s leaders in this year’s effort of reducing spending on renewables, even though he says he remains committed to them in the long term.
Despite improved fundamentals, it’s at a much lower valuation than competitors ExxonMobile (NYSE: XOM), Chevron (NYSE: CVX) and Shell (NYSE: SHEL), making it one of the top undervalued stocks. In the third quarter, while revenue of $54 billion was down 6%, year over year, net income of $4.86 billion was up 324% over the same period a year earlier.
The company raised its quarterly dividend last year to $0.44 and its yield is around 4.67%. BP has boosted its dividend for three straight years, after cutting it in half in 2020 when the COVID-19 pandemic hit sales hard.
4. PayPal – Venmo, Innovations Make the Stock a Buy
Investors have soured on the large-cap fintech because its margins have fallen, and it is facing tough competition from Apple Pay and Block. However, new CEO Alex Chriss just announced innovations that he said should drive revenue higher, such as a revamped checkout system, AI-enabled smart receipts, and enhanced profiles for businesses on the company’s payment app, Venmo. In March, Venmo is launching a CashPass app that will offer personalized cash-back offers for consumers.
Even before the revamp, the company’s revenue was on the upswing. In the third quarter, revenue rose 8% to $7.4 billion year over year, and total payment volume rose 15% to $387.7 billion.
Profits were down, though, with EPS falling to $0.93 compared to $1.15 in the same period a year ago. However, for the full year, the company said it expects EPS of $3.75, compared to $2.09 in 2022.
PayPal is an undervalued tech stock. It has a big weapon in Venmo, which is growing in popularity, both among younger and older users. Amazon may be feeling the heat, which could be one reason why this month, it said it will stop taking Venmo payments, just 14 months after first allowing them.
5. Chesapeake Energy – Poised to Benefit from Natural Gas Price Gains
Chesapeake is coming off a rough third quarter, with revenue of $1.41 billion and net income of $70 million, down more than 66% and EPS of $1.09, down more than 78%. However, looking ahead, there are a lot of factors that point to an upswing for the company.
Despite all the push toward renewable energy, it’s worth noting that the largest generator of electricity in the U.S. is natural gas. So, as more EVs roll off assembly lines, they will still, indirectly, be powered by natural gas. Chesapeake just made a move to increase revenue while finding greater efficiencies of scale by merging with Southwestern. Gas prices are expected to rise later this year because more export terminals are being built in the U.S. to ship gas to Europe and Asia, where it’s more expensive than in the U.S.
Chesapeake, trading with a P/E of around 2.13, is inexpensive compared to other large natural gas companies such as EQT Corp (NYSE: EQT), with a P/E of 4.92, Apache Corporation (NASDAQ: APA), with a P/E of 6.53 and Coterra Energy (NYSE: CTRA) with a P/E of 8.66. Chesapeake also has an above-average dividend yield of around 4.67%, based on its quarterly dividend of $0.575 and the payout ratio is a low 15.4%.
6. Tencent Holdings – Best Undervalued Stock for Growth
News that China’s gaming regulator may have removed rules that were meant to curb spending and the playing of video games recently gave Tencent’s shares a boost, but it’s still down more than 27% over the past year.
Its strong growth profile, with an increase of quarterly revenue of 22.3% over the past three years, however, makes it a good long-term investment. A report by Statista puts the video games market at $282.3 billion in 2024 and this industry should have a compound annual growth rate of 8.76% between 2024 and 2027, making it a $363.2 billion market by then.
In the third quarter, Tencent reported revenue of 154.6 billion yuan (roughly $21.78 billion), up 10%, year over year and 4% sequentially. Net income was 44.9 billion yuan (roughly $6.32 billion), up 39% over the same period last year and 10% over the second quarter. The company has a low-yielding twice-yearly dividend of $0.31 per share, a yield of around 0.75%.
7. General Motors – Buybacks, Increased Dividend Make it More Attractive
GM is trading at less than five times earnings and based on expected earnings, a forward P/E ratio of only 4.5. That’s well below other U.S. automakers and Toyota. Clearly, General Motors thinks it’s trading at too low a price as the company began a new $10 billion stock buyback plan in November. The company also raised its dividend by 33% this year to $0.12, equaling a forward yield of around 1%.
Last year, GM led all U.S. automakers in total sales, and it led the group in sales of trucks, full-size pickups, full-size SUVs, affordable SUVs and fleet vehicles. As the company begins to develop more electric vehicles, its profits should increase.
In the third quarter, GM reported revenue of $44.1 billion, up 8%, year over year and EPS of $2.20, compared to $2.25 in the same period a year ago. The company lifted its 2023 guidance to say it expected yearly net income to be between $9.1 billion and $9.7 billion, compared with $9.3 billion in 2022 and EPS to be between $6.52 and $7.02, compared with $7.59 last year.
The company behind such brands as Coach, Kate Spade and Stuart Weitzman, has seen strong growth, particularly in Asia.
In the first quarter of fiscal 2024, Tapestry reported revenue of $1.51 billion, up 2%, year over year and EPS of $0.94, up 18% over the same period last year. The company’s guidance for full-year 2024 points to $6.7 billion in revenue, up slightly over 2023, and EPS of between $4.10 and $4.15, representing 6.5% growth at the midpoint.
Last year, Tapestry purchased Capri, the owner of the Versace and Michael Kors brands, for $8.5 billion and it expects to see cost savings from the deal, plus an expansion of the company’s reach across geographics, product categories and consumer segments. On top of that, it increased its quarterly dividend by 17% last year to $0.39 per share, equaling a yield of around 3.53%.
9. Everest Group – Best Undervalued Stock for Climbing Revenue
Everest is underpriced, trading at a fraction of what other reinsurers such as Arthur J. Gallahger (NYSE: AJG) and Reinsurance Group of America (NYSE: RGA) trade for.
In the third quarter, Everest posted revenue of $3.99 billion, up 25%, year over year, and net income of $678 million, up 312.5% over the third quarter of 2022. With gross written premium revenue of $8.56 billion, it’s on track for another year of double-digit growth in the segment.
Everest raised its quarterly dividend by 6.1% last year to $1.75, equaling a yield of around 1.85%
The telecom giant cut its dividend by 47% in 2022 after 35 years of consecutive increases and that’s the biggest reason the stock is trading at such a low valuation, nearly half that of Verizon (NYSE: VZ) and more than half that of T-Mobile (NASDAQ: TMUS).
However, given that its payout ratio is now down to a sustainable 56.5% and the company’s previous dedication to its dividends, another cut is unlikely. The dividend yield is still above average (around 6.53%) and the company has plenty of free cash flow to support continued increases. That makes it one of the most undervalued dividend stocks.
The company appears to be in the midst of a turnaround. It has improved margins by cutting expenses and it is seeing more potential top-line growth, thanks to subscriber gains in 5G and AT&T Fiber. Fiber, in particular, showed gains, with revenue climbing 22%, year over year, to $1.7 billion in the fourth quarter. Overall, in the fourth quarter, it had revenue of $32 billion, up 2.2%, year over year and EPS of $0.30, compared to a loss per share of $3.20 in the same period a year ago.
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The broker keeps lists of top gainers and losers, trending stocks, and analyst buy/sell ratings. This data can be very helpful for finding potentially undervalued stocks. eToro also tracks what proportion of users are buying vs. selling a stock, which can be an indicator of whether it’s picking up momentum.
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Undervalued stocks are trading at a share price that is considerably lower than the company’s intrinsic value, that is, the estimate of what the company is worth based on likely cash flows and its assets would justify.
In other words, an undervalued stock is trading below, per share, what the company would be worth if it was bought outright. One indicator to watch could be the P/E ratio that we mentioned above.
Here’s the formula to calculate it:
Source: Corporate Finance Institute
How to Pick the Best Undervalued Stocks to Invest in
Look for Companies That Have Survived Temporary Setbacks
Sometimes, the best undervalued stocks are quality companies with strong fundamentals that have had to survive some type of crisis, such as a lawsuit, an earnings disappointment, or some other setback.
Oftentimes, the markets tend to overreact to such news and that can drive a stock down below its intrinsic value. If a company’s financial condition and market share remains strong despite whatever bad news is affecting the stock’s price, that could make for a good investment at a favorable price.
Compare a Company’s Financial Ratios to Competitors
It’s not enough to look for companies with low price-to-earnings ratios (P/E) or price-to-book (P/B), because those metrics vary widely by industry. To find a potential undervalued gem, see if a company’s P/E or P/B is significantly lower than similar companies.
Look for Stocks That Are Being Overlooked
Undervalued stocks might be overlooked by the broader market because they’re not as well known, or maybe their business model has changed for the better and that hasn’t been fully factored in by investors. Sometimes, something as simple as a change in leadership, or a change in a company’s direction could mean it will be overlooked.
Right Company, Wrong Sector
Sometimes an undervalued company is being punished because its industry is struggling, even if a particular company’s financials are strong. For example, tech stocks, in general, were down in 2022, but that doesn’t mean all tech companies struggled.
Understand the Risks
Sometimes, there’s a good reason why a stock appears to be undervalued. If there’s been a fundamental shift in the industry, or if a company’s weak financial performance seems to be a trend, that’s a stock to stay away from. Investors looking for undervalued stocks have to look at them as long-term investments, not momentum plays.
The service utilizes social media and other websites, app downloads, customer satisfaction ratings, and other data regarding a company, the type of things that go beyond a company’s financial report.
AltIndex gathers data over a period and uses it to compare it to other companies, depending on artificial intelligence to develop investment insights. Stocks are given a score from 1 to 100, making the analytical process easier for investors.
AltIndex is a widely used and trusted service with more than 10,000 members. It provides more than 100,000 unique daily stock insights and alerts and has a very impressive win rate of 75% from its AI stock picks.
You can try AltIndex’s Starter Plan for just $29 a month and receive stock picks directly to your email, as well many other useful features.
Conclusion
Investing in undervalued stocks provides a potential for higher returns, particularly if investors are willing to wait for a stock’s long-term potential to come to fruition. Undervalued stocks are also useful hedges against market downturns.
Buying undervalued stocks, though, isn’t for the faint of heart because it requires going against the herd mentality. The best undervalued stocks have high-yielding dividends that will pay you to be patient for a stock’s turnaround.
Companies in the tech, real estate, and communication services sectors are the most undervalued right now.
Is it good to buy undervalued stocks?
Buying undervalued stocks is a proven strategy, but one with risks. It requires a greater examination of a company to determine if its valuation is deserved, or just a short-term problem that will correct itself.
How do you find undervalued stocks?
AltIndex is one source. There are also stock screeners that are good places to find companies that may be underpriced compared to competitors.
I am an experienced journalist who has also worked as an editor and writer at the Savannah Morning News, Salt Lake Tribune, USA Today, Stars and Stripes, and The Motley Fool. I spent the first half of my career in sports journalism, but in recent years have switched to writing about my other passion, stocks, particularly healthcare, real estate and consumer staples stocks. I've won numerous journalism awards from the Associated Press and state press associations and have been a judge for the Georgia Sportswriters Association. I've written one non-fiction book, Just One More Time, about Georgia Southern football, and…
