3 Undervalued Stocks With At Least 50% Upside

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The post-pandemic stock market has been divided. Investors have benefited from holding the largest and highest-growth stocks, while many smaller underperforming stocks have dragged indices lower. Indeed, the differential between the so-called Magnificent 7 group of tech darlings and the rest of the market has been notable.

That said, as multiples have expanded at the premium tier of the stock market, a number of other notable growth stocks now are undervalued on a comparative basis. Many of these companies were once darlings, whether due to pandemic related tailwinds or the previous lower interest rate environment.

With the Federal Reserve set to cut rates by as much as 50 basis points this next meeting, investors have to wonder whether these undervalued growth stocks are worth considering. Here's my take on three of the best such options to consider, for those with such a view.

Key Points About This Article:

• Finding undervalued stocks in this market isn't easy, given how high valuations have climbed at the premium end of the market for growth stocks.
• However, certain high-growth companies have valuations that are attractive on a relative basis, and are worth at least considering right now.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report . It features a software stock we’re confident has 10X potential.

PayPal (PYPL)

PayPal sign in an office complex

PayPal ( NASDAQ:PYPL ) is among the top fintech stocks in the world, with an expansive market share in a business that's historically been very high margin. The company has seen impressive efficiency improvements of late, improving its earnings profile and its multiple has shrunk in line with this strong performance. Now, on a forward price-earnings basis, this stock trades at a multiple of just 15-times . For a company of this caliber, I'd put PayPal in the value bucket for sure.

The company exceeded earnings and revenue estimates in its second quarter earnings report , with adjusted earnings rising 36% to $1.19 per share. Revenue increased 8% to $7.9 billion, surpassing analyst predictions. Despite total payment volume falling slightly short of expectations, transaction gross profit grew 6.5% to $3.2 billion. As a result of strong user growth and high profitability in its Braintree and Venmo businesses, PayPal continues to pump out more earnings and cash flow than many investors thought possible.

I think the company's earnings growth trajectory, which PayPal's management team raised during this past earnings call, should continue to guide higher. The company expects low-to-mid teens earnings growth as transaction margins improve. So long as these trends remain in place, this is a stock I think is worth buying at a discount here.

Target (TGT)

Inside of a Target store

Consumption spending drives U.S. GDP growth. We all know that. So when it comes to indications of how the economy is performing, companies like Target ( NYSE:TGT ) will be closely-watched from here. Of course, incoming interest rate cuts could improve the outlook for certain consumers, particularly those on the lower end of the income spectrum. But after Target reported a 3.7% decline in Q1 2024 comparable sales, investors have rightly grown concerned with this stock.

This decline has led to a forward price-earnings multiple of around 14-times, which for a retailer of this quality is very undervalued in my view, and on a historical basis. The company now expects growth to rebound in Q2 to positive territory, but there's some obvious questions that will need to be answered in upcoming earnings calls.

That said, I think if the company can address investor concerns and paint a more rosy picture when it comes to earnings growth, this is a stock that could be worth considering. Target has made some notable progress in its cost-cutting and price reduction measures to improve margins. And while some analysts think there could be near-term pressures on TGT stock, there are other analysts who are bullish on the stock and upgrading target on the potential for EBIT growth in 2024.

I'm in the latter camp that thinks Target can certainly turn things around, and is a stock that's starting to look very cheap here.

Barrick Gold (GOLD)

Massive gold nuggets

As Canada’s major gold and copper miner, Barrick Gold ( NYSE:GOLD ) is a great way for long-term investors to take advantage of rising gold prices. Although the company's stock price is down 30% from its 2020 highs, I think these lower levels represent a buying opportunity, irrespective of the negative momentum currently embedded in this name.

Importantly, Barrick's Q3 2024 earnings report exceeded estimates, with the company showing a 12% revenue increase, $340 million in free cash flow, and a 68% increase in adjusted EPS.

Barrick did show a decline in gold production to 948,000 ounces this past quarter. But as prices surged toward the $2,500 per ounce range, Barrick's profitability remains strong. Precious metals margins aside, copper prices have sunk. So, the question is how aggressively Barrick will expand its copper projects, and how aggressively it chooses to pursue this line of business.

But over the long-term, I think Barrick remains one of the best ways to play this space. The company's investment grade balance sheet, its capital spending plans, and its production growth potential could provide big growth if gold prices do their thing as recessionary forces grow.

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