An undervalued company stock is one that is consistently profitable and has attractive long-term growth prospects but whose share price is cheap compared to many of its peers. Such stocks can be great options for patient buy-and-hold investors willing to wait for hidden bargains.
Although investors are always on alert for a good deal, it's important to remember that some stocks are “cheap” for a reason. It may be that a company's growth prospects have diminished, it's losing money, or it's losing business to new competitors. Whatever the reason, stocks like these (sometimes called “value traps”) are not considered undervalued even if they trade at very low prices.
7 top undervalued stocks in 2023
Here are seven excellent undervalued stocks to consider:
1. Berkshire Hathaway
When considering the best underappreciated value stocks, famed investor Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) deserves to be atop this list. Buffett has become one of the wealthiest people on the planet by successfully buying and holding quality companies for decades. Berkshire Hathaway underperformed the S&P 500 (SNPINDEX: ^GSPC) in the 2010s (as well as in 2020, when the market was favoring high-growth tech companies). However, that changed in dramatic fashion in 2021 and into 2022 as value stocks made a comeback.
Berkshire Hathaway is a holding company that owns insurance businesses (GEICO, among others), one of the largest railroads in the U.S. (BNSF Railway), an energy and utility conglomerate (including a huge renewable energy division), and various other enterprises that span industries from food to apparel. Berkshire also holds significant stakes in Apple (NASDAQ:AAPL), Bank of America (NYSE:BAC), and Coca-Cola (NYSE:KO).
Buffett and his team provide updates on changes to the company’s stock portfolio every quarter. In recent years, Berkshire Hathaway's largest stock purchase has been its own stock. In his annual letter to shareholders, Buffett indicated that repurchases of Berkshire Hathaway stock will continue as long as it looks undervalued relative to the underlying businesses’ growth potential. The company's share repurchases have slowed in 2022 as Buffett went on a stock- shopping spree -- including the acquisition of insurance company Alleghany (NYSE:Y) and big additions to oil conglomerate Occidental Petroleum (NYSE:OXY).
Although Buffett's value-focused investing style fell out of favor in the past decade, the company's recent purchases are a clear signal to the market that he considers stocks to be a good long-term value. If you’re in the market for an undervalued stock that you can buy and forget for many years, Berkshire Hathaway is a great choice.
Target (NYSE:TGT) is a Dividend Aristocrat, having increased its dividend payout to shareholders every year for almost 50 years. After a banner year in 2020 during the start of the COVID-19 pandemic, the company increased its revenue again in 2021. Shifting consumer spending and inflation put a dent in its profit margins in 2022 as households refocus on essentials rather than bigger-ticket items. The longer-term potential is still there for Target, though.
Best known as a big-box store, Target has transformed itself into a one-stop shop that sells everything from groceries to basic household goods. Target also has its own in-house labels in traditional department store categories such as apparel and home decor. Additionally, almost all U.S. residents live within 10 miles of a Target store, helping the retailer to turn its locations into distribution centers. Some 95% of all orders -- even many placed online and shipped to customers’ homes -- are now fulfilled by local stores rather than distribution centers. Target also offers curbside pickup and is expanding its Shipt delivery service.
In the coming years, Target expects to increase its annual capital expenditures to about $4 billion. The spending will be used to open new stores, remodel existing stores, and improve supply chains -- a sharp increase from the approximately $2.7 billion it allocated annually from 2016 to 2020. The company is also committed to expanding its e-commerce operations while continuing to pay a reliable dividend.
The company's stock, however, still trades like it is only a brick-and-mortar retailer. Target is implementing a multi-pronged strategy that effectively leverages its physical footprint. E-commerce pure plays are all the rage, which also contributes to Target’s stock being undervalued.
E-commerce pioneer Amazon (NASDAQ:AMZN) settled the debate years ago about whether its sprawling operation could ever turn a profit. It’s been quickly and steadily churning out higher rates of net income every year. However, the company has ramped up its 2022 spending to widen its lead in e-commerce and continue its expansion into the economy. As a result, Amazon may not be the first name to come to mind as an undervalued business. This is, after all, still very much a growth stock.
Amazon is lapping the early pandemic boom it enjoyed in 2020 and 2021 when online shopping activity was elevated. As it laps these results, e-commerce revenue growth has slowed to a single-digit-percentage pace. But the cloud computing segment AWS is still firing on all cylinders, and profits from AWS are being reinvested into data centers and other digital services to foster even more growth.
However, regulatory concerns have cropped up. Some worry the company’s e-commerce, cloud computing, advertising, and various other unified businesses could cause Amazon to follow some of its fellow tech giants into the crosshairs of government regulators.
Whether that happens remains to be seen. Either way, Amazon is starting to look undervalued given its enduring growth trajectory and long-term potential. The stock’s price is about even with its price in the summer of 2020 even as Amazon’s massive reach has continued to expand.
4. JPMorgan Chase
Retail financial services and investment banking giant JPMorgan Chase (NYSE:JPM) has assets of nearly $4 trillion globally. It's a banking behemoth that maintains a tiny presence in many U.S. cities. The bank has an international footprint and is rapidly expanding its presence, especially in emerging markets where banking services are not easily accessible to many people. JPMorgan is particularly active in China.
JPMorgan is aware that digital banking is trending among young consumers. It offers various apps to help clients manage their cash and debt, and it prioritizes the mobile experience. The company is facing plenty of competition from technology companies seeking to make inroads into the massive financial services industry, but it’s proving its ability to evolve.
JPMorgan also has plenty of other levers that it can pull to drive growth. Its bank branches can help it to receive more deposits and issue credit cards, offer sophisticated services such as wealth management, and deepen the bank's relationship with clients. Banking services aimed at local communities to foster inclusivity have also become part of its steady expansion strategy.
JPMorgan Chase stock has fallen sharply in 2022 on heightened fears that the economy could slip back into recession. Shares trade like those of other traditional banks even though the company is competing in the technology space. Pure-play fintech companies trade for much higher premiums, but this massive bank will continue to strongly perform as consumers increasingly use mobile devices to manage their finances. The stock looks cheap for its long-term potential and dividend payout after a tough year.
Internet conglomerate Alphabet (NASDAQ:GOOGL)(NASDAQ:GOOG) is a ubiquitous name in tech. Google Search is used every day by hundreds of millions of people all over the world. YouTube is the world’s most-watched video service. And Google Cloud holds a lot of promise as cloud computing becomes the norm in IT.
2022 has not been kind to Alphabet stock, though. Much of the business is still closely tied to advertising, and organizations tend to cut spending on ads in difficult economic times. As a result, shares have sold off hard on worries that Alphabet is headed for a lean year -- although the ad industry has continued to grind higher through the first half of the year.
Longer term, global digital advertising spending could hit $1 trillion annually by the end of this decade. Many estimates also point toward cloud computing reaching $1 trillion in annual spending in the next 10 years, too. These projections put Alphabet in front of multiple secular growth trends, an excellent position to be in for investors who want to park money on a sure-fire stock for the foreseeable future.
Still, Alphabet stock trades for nearly the cheapest it’s ever been by some metrics. Alphabet also has some of the deepest pockets around with more than $100 billion in net cash and investments. Alphabet uses its cash hoard to invest in emerging tech (such as its self-driving car start-up Waymo) and to repurchase stock. The tech giant is a top undervalued buy for 2022.
Speaking of cloud computing, The Walt Disney Company (NYSE:DIS) is an excellent example of a non-tech company making excellent use of technology. Its 2019 launch of Disney+ marked the company's entrance into the streaming TV market. The service had more than 150 million subscribers by mid-2022, plus millions more ESPN+ and Hulu subscribers. Within the next few years, the customer base for Disney+ (marketed as Disney+ Hotstar in many markets outside the U.S.) is expected to increase to hundreds of millions, putting Disney+ on path to overtake Netflix (NASDAQ:NFLX) as the world’s largest streaming service.
Disney+ is certainly not undervalued since investors are already aware of its long-term potential, but the rest of Disney certainly could be. The company’s marquee theme park business essentially stopped generating revenue in 2020 and was a huge drain on profitability through 2021. The same goes for its film business since new movie releases were delayed or sent directly to the streaming service.
The global economy is still finding its footing amid ongoing pandemic-related challenges. But consumer travel is making a big comeback in 2022, especially in the U.S. Travel is still depressed internationally, but domestic vacations are boosting Disneyland and Disney World. Trips to the theater are making a comeback, too, and Disney’s Marvel superhero franchise in particular is helping the entertainment giant turn a profit from filmmaking again.
With some of the most beloved entertainment franchises in Disney's stable -- and multiple ways to monetize them through its vertically integrated operations -- the company’s non-streaming businesses have plenty of upside potential. Disney stock looks undervalued for 2022 and beyond.
When it comes to semiconductors, Qualcomm (NASDAQ:QCOM) is a commonly understood name. Almost every smartphone on the planet has one of Qualcomm’s chip designs in it. Apple has made waves as it’s been bringing design of its iPhone and Mac circuitry in-house, but most smartphone makers aren’t large enough to have that kind of power. With some 85% of the world’s smartphones utilizing Google’s Android platform, Qualcomm still holds sway over everyday mobile devices.
5G mobile network deployment is still going strong in most countries and has consumers rapidly upgrading their devices to take advantage of 5G. Qualcomm is finding plenty of new growth outlets for its hardware, such as industrial equipment that needs a mobile connection. Another area is networking equipment, the hardware that actually generates wireless signals and allows for devices of all types to connect to it. The automotive segment is growing rapidly, too. Qualcomm has quickly gone from virtually no auto industry sales to generating more than $1 billion in annual revenue.
As technology makes more inroads into modern vehicles, Qualcomm sees its auto segment doubling several times over in the next few years. From wireless connectivity to processors controlling advanced driver assist systems to actual software operating systems, Qualcomm has automakers covered with a robust tech lineup.
Working from a position of strength in mobile computing, Qualcomm has been reinvigorated lately as chips proliferate throughout the global economy. It’s a top name in the semiconductor business, one that is often overlooked and is trading at a discount relative to many of its peers.
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How to find undervalued stocks
When considering whether a company is undervalued, determine if it is consistently profitable and examine the company’s long-term growth prospects. Don't just evaluate the “cheapness” of its price-to-earnings ratio. Focusing on companies with strong business fundamentals is the best way to ensure the long-term generation of wealth and affords the greatest peace of mind. High-quality businesses tend to perform well over the long term, no matter what competitive or economic challenges they may face.
Value Stock FAQs
How do I start value investing?
Value investing is an investment strategy that focuses on stocks that are underappreciated by investors and the market at large. Value investing requires a lot of research. You'll have to do your homework by going through many out-of-favor stocks to measure a company's intrinsic value and comparing that to its current stock price. Often, you'll have to look at dozens of companies before you find a single one that's a true value stock.
What are value vs growth stocks?
Value investing and growth investing are two different investing styles. Usually, value stocks present an opportunity to buy shares below their actual value, and growth stocks exhibit above-average revenue and earnings growth potential.
What are value stock ETFs?
An exchange-traded fund (ETF) that invests in value stocks uses specific criteria to find companies whose intrinsic values substantially exceed the market values implied by their stock prices. By investing in a wide range of undervalued companies, value stock ETFs confer instant portfolio diversification. Buying shares in a value stock ETF can be a safe and easy way to invest in companies in cyclical industries.