7 Most Undervalued Stocks of 2024

After a terrible bear market in 2022, some stocks are showing some signs of life again in 2023. Many companies took a beating and are undervalued when viewing their potential over the next few years.

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An undervalued company stock is one that is consistently profitable and has attractive long-term growth prospects. Its share price is also cheap compared to many of its peers and cheap compared to the amount of future profit expected to be generated. 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.

Seven 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 (BRK.A 0.64%)(BRK.B 0.54%) 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 starting in 2021 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 (AAPL -0.57%), Bank of America (BAC 1.53%), and Coca-Cola (KO 0.68%).

Buffett and his team provide updates on changes to Berkshire Hathaway’s stock portfolio every quarter. In recent years, the company's largest stock purchase has been its own stock. In his annual letters to shareholders, Buffett indicates that repurchases of Berkshire Hathaway stock will continue as long as it looks undervalued relative to the underlying businesses’ growth potential.

Fiscal Quarter

In the financial world, a quarter refers to a three-month period used for reporting and recording financial performance, typically representing one-fourth of a company's fiscal year.

The company slowed its share repurchases in 2022 but picked up the pace again in early 2023 as Buffett went on a stock-shopping spree -- including the acquisition of insurance company Alleghany and big additions to oil conglomerate Occidental Petroleum (OXY 0.09%).

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 still 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.

2. Target

Target (TGT 1.28%) is a top dividend stock. It has increased its dividend payout to shareholders every year for 50 years. After a banner year in 2020 during the start of the COVID-19 pandemic, the company increased its revenue again in 2021 and 2022. However, shifting consumer spending and high inflation put a dent in its profit margins in 2022 as households refocused on essentials rather than bigger-ticket items.

There's longer-term potential 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 household goods. It has been scooping up department store market share for years. One key to its success here has been 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 and rising dividend.

The company's stock has fallen from highs, though, and is valued based on its depressed profit margins. If this retailer can boost its operating margin back to where it was a few years ago, there is plenty of value tied up in this stock. E-commerce pure plays are all the rage, but Target has built itself an exceptional business model for the digital age.

3. Amazon

E-commerce pioneer Amazon (AMZN -1.14%) settled the debate years ago about whether its sprawling operation could ever turn a profit. However, the company ramped up its spending during the pandemic 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, given its low rate of profitability right now. This is, after all, still very much a growth stock.

Amazon was lapping the early pandemic e-commerce boom it enjoyed in 2020 and 2021 when online shopping activity was elevated. But in 2023, global economic headwinds have also begun to impact its crown jewel, Amazon Web Services (AWS). The cloud computing segment's growth has slowed dramatically, though profits from AWS are being reinvested into data centers and other digital services to foster even more growth -- like into new generative AI services powered by Nvidia (NVDA 0.76%) chips.

Regulatory concerns have also 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 to return to robust profitability. 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 (JPM 0.65%) 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 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 in 2022 and 2023 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 and has a rock-solid operation. Pure-play fintech companies trade for much higher premiums, but this massive bank will continue to perform strongly 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 couple of years.

5. Alphabet

Internet conglomerate Alphabet (GOOGL 0.35%)(GOOG 0.37%) 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 streaming service. And Google Cloud holds a lot of promise as cloud computing becomes the norm in IT.

2022 was not 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 sold off hard on worries that Alphabet is headed for leaner times -- although the ad industry is expected to continue growing in the years to come.

Longer-term, global digital advertising spending could hit $1 trillion annually by the end of this decade. Many estimates 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. Google Cloud also swung to an operating profit in early 2023, which should provide a big boost to earnings growth going forward.

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 long-term undervalued buy for 2023.

6. Booking Holdings

The travel industry is back with a bang in 2023. U.S. travel, in particular, has surpassed 2019 highs, and international travel is making a rapid rebound, too. This is wonderful news for the world's largest online travel conglomerate, Booking Holdings (BKNG -0.4%).

The global economy is still finding its footing amid ongoing pandemic-related challenges. But consumer travel is enjoying a resurgence in interest as younger generations rank experiences as more important to them than purchasing physical things. Additionally, travel is still depressed in some international markets. Booking -- the parent organization of Booking.com, Priceline, Agoda, and KAYAK -- may not be the high-growth company it was in the 2000s and 2010s. Nevertheless, it still has plenty of gradual growth ahead of it thanks to these new travel trends.

One of the best reasons to invest in Booking, though, is its enviable profitability. As it has emerged from the pandemic slump, its free cash flow profit margins have once again been higher than 40%. This gives Booking plenty of room to invest in emerging trends -- like how it was able to add unique places to stay to its marketplace in response to the viral success of Airbnb (ABNB 1.09%).

Additionally, Booking is a shareholder-friendly business. It returns much of its free cash flow to investors via stock repurchases. This could make Booking Holdings a top long-term bet on the growing importance of global travel. This will likely be a slower-growth business, but high rates of cash generation and growing shareholder returns could add up to a winning formula for value investors.

Semiconductor

A semiconductor is a basic element or compound substance that conducts electricity in certain situations.

7. Qualcomm

When it comes to semiconductors, Qualcomm (QCOM -1.75%) is a household name. Almost every smartphone and mobile device on the planet has one of Qualcomm’s chip designs in it or makes use of one of Qualcomm's mobile network patents.

Apple has made waves as it’s been trying to design its iPhone and Mac circuitry in-house, but to date, it has struggled to cut ties with Qualcomm. Most smartphone makers aren’t large enough to have that kind of design power, so Qualcomm will be a sticky supplier to the smartphone market for many years to come. And with over 80% 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 many consumers still have yet to upgrade their devices to take advantage of 5G. Additionally, Qualcomm is finding plenty of new growth outlets for its hardware, such as industrial equipment that needs a mobile connection. Another area is the automotive industry. Qualcomm has quickly gone from virtually no auto industry sales to generating more than $1 billion in annual revenue from this segment.

As technology makes more inroads into modern vehicles, Qualcomm sees its auto segment doubling several times over 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 able to withstand a sharp downturn in the chip industry. In recent fiscal quarters, it has remained highly profitable even as smartphone sales have dipped.

Qualcomm is a top name in the semiconductor business, one that is often overlooked and is trading at a discount relative to most of its peers. Qualcomm also doles out lots of cash in the form of quarterly dividends and share repurchases.

How to find undervalued stocks

Undervalued companies aren’t necessarily the biggest ones out there. They could also be mid-cap or small-cap companies or even growth-oriented companies that trade for less than their peers.

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 for the long term.

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.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Nicholas Rossolillo has positions in Airbnb, Alphabet, Amazon, Apple, Berkshire Hathaway, Nvidia, Qualcomm, and Target. The Motley Fool has positions in and recommends Airbnb, Alphabet, Amazon, Apple, Bank of America, Berkshire Hathaway, Booking Holdings, JPMorgan Chase, Nvidia, Qualcomm, and Target. The Motley Fool recommends Occidental Petroleum and recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.

Seven top undervalued stocks in 2023

Seven top undervalued stocks in 2023

1. Berkshire Hathaway