3 stocks undervalued by at least 50% up

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

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

With the Federal Reserve set to cut rates by as much as 50 basis points at its next meeting, investors have to wonder if 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 relatively attractive and are at least worth considering right now.
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PayPal (PYPL)

Sign PayPal in an office complex

PayPal (NASDAQ:PYPL) is among the best fintech stocks in the world, with an expansive market share in a business that has historically been very large. The company has seen impressive efficiency improvements of late, improving its earnings profile, and its multiple has narrowed in line with this strong performance. Now, on a forward price-to-earnings basis, this stock is trading 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 beat earnings and revenue estimates in its second-quarter earnings report, with adjusted earnings rising 36% to $1.19 per share. Revenue rose 8% to $7.9 billion, beating analysts’ forecasts. Despite total payment volume falling slightly below expectations, gross transaction profit rose 6.5% to $3.2 billion. On the back of strong user growth and high profitability in its Braintree and Venmo businesses, PayPal continues to generate more revenue and cash flow than many investors thought.

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

Target (TGT)

Inside a Target store

Consumer spending drives US GDP growth. We all know that. So when it comes to indications of how the economy works, companies like it Aim (NYSE:TGT) will be closely watched from here. Of course, lower interest rates could improve the outlook for some consumers, especially those at the bottom of the income spectrum. But after Target reported a decrease of 3.7% in Q1 2024 comparable sales, investors have rightly been concerned about this stock.

This decline resulted in 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 to grow return in T2 in positive territory, but there are some obvious questions that will need to be answered in future earnings calls.

That said, I think if the company can address investor concerns and present a rosier picture when it comes to earnings growth, this is a stock that could be worth considering. Target has made some notable strides cost-cutting and price-cutting measures to improve margins. And while some analysts believe there could be near-term pressure on TGT’s stock, there are other analysts who are bullish on the stock and targets improving EBIT growth potential in 2024.

I’m in the latter camp that thinks Target can definitely turn things around, and it’s a stock that’s starting to look really cheap here.

Barrick Gold (GOLD)

Massive gold nuggets

As Canada’s leading 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 share price is down 30% from its 2020 highs, I believe these lower levels represent a buying opportunity regardless of the downside momentum currently embedded in the name.

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

Barrick showed a drop in gold production 948,000 ounces last quarter. But as prices have climbed toward the $2,500-per-ounce range, Barrick’s profitability remains strong. Precious metal margins aside, copper prices fell. So the question is how aggressively Barrick will expand its copper projects and how aggressively it chooses to pursue this line of business.

But 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 potential for production growth could provide big upside if gold prices do their job as recessionary forces mount.

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