Recent macro-related factors have pushed stocks lower in sectors like tech and finance. However, when it comes to finding the most undervalued stocks, you may want to consider stocks that have fallen for other reasons.
Namely, you may want to focus on names that have fallen due to the market's overreaction to negative company-specific news. These stocks have strong rebound potential. The reasons for this are twofold. First, even most headwind-laden stocks can reach a price at which their value makes them worth the risk. Bargain hunters sweep in, and shares begin to recover.
Second, in some cases, a spate of positive news could arrive, leading to a sentiment shift and a subsequent rebound for the stock. Right now, the following stocks meet these criteria: PayPal Holdings (PYPL 2.65%), Wendy's (WEN +2.05%), and Yelp (YELP 2.67%).
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Investors are catching on to PayPal's deep value proposition
PayPal Holdings shares experienced a sharp price decline at the start of February. The release of disappointing results, coupled with the unexpected news that CEO Alex Chriss was stepping down in favor of former HP head Enrique Lores, prompted a bearish reaction from investors.
Chriss' turnaround failed to drive a growth resurgence. It's unclear what exactly Lores will do get the company back into growth mode. However, PayPal stock is surging once again due to a possibly emerging catalyst.
Post-plunge, PayPal fell to a forward earnings multiple in the high single digits. This initially attracted speculation that PayPal could be a takeover target. Now, there may be even more substance to these rumors, following reports that competitor Stripe is interested in acquiring all or some of the company. Even if no deal arises, this news may further highlight PayPal's newfound value-stock status. This, in turn, could attract new buyers for shares, sending them higher.
NASDAQ: PYPL
Key Data Points
Wendy's could also benefit from strategic alternatives
Wendy's shares have fallen 50% in the past year. Blame these sharp declines mostly on the company's dwindling sales and squeezed margins. However, following this steep decline, Wendy's now trades for less than 10 times forward earnings.
Much like with PayPal, this low valuation could attract increased shareholder activism and/or buyout interest. Reportedly, activist investor Nelson Peltz is weighing his options regarding his investment in Wendy's, which dates back to the mid-2000s.
After a spate of private-equity-backed fast-food mergers and acquisitions (M&A) deals, Wendy's could be an attractive target. Even if Wendy's stays independent, there's another path back to higher prices, if the company's "Project Fresh" turnaround plan starts to have a positive impact on quarterly results.
NASDAQ: WEN
Key Data Points
Yelp is down, but not out
After falling by 35% over the past year, Yelp shares now trade for less than 6 times forward earnings. Yes, this social media stock gives off serious value trap vibes. Besides concerns related to the company's lackluster 2026 guidance, there are concerns that the rise of generative artificial intelligence threatens its local business review and advertising businesses.
However, before the situation worsens, Yelp could turn the ship around. Yelp is sitting on around $300 million in net cash. That represents nearly a quarter of its market cap. The company could use this money to fund a big share repurchase or to make an acquisition.
Yelp has been a rumored takeover target in the past, but at today's super low valuation, private equity and/or strategic buyers may be more interested in doing a deal.
