For anyone just starting their investing journey, the world of stocks can feel both exciting and intimidating. Everyone wants to find the next big opportunity, but what if the best choice isn’t the most popular stock everyone’s talking about? Enter undervalued stocks. These are stocks that, for various reasons, are trading below what experts believe is their true value. Buying them presents a chance to not only secure solid long-term returns but also potentially outperform the market as these stocks rebound to their worth.

You might wonder, why would a stock be undervalued in the first place? Often, it’s because of temporary setbacks like negative news coverage, sector-wide slumps, or even misjudgments by the market. For savvy investors, this is where opportunity lies. By looking at the fundamentals of a business—not just its current price tag—you can uncover stocks that are poised for growth.

This post will explain the basics of undervalued stocks, why they could make a smart addition to your portfolio, and share insights into some stocks predicted for a rebound in 2025. Whether you’re a beginner or simply looking for new ideas, this guide will help you understand how undervalued stocks might fit into your financial strategy.

What are Undervalued Stocks?

An undervalued stock is a company that, at least according to analysts, is trading for less than what it’s truly worth. This "true value" is often referred to as the stock’s intrinsic value, and it’s calculated based on a company’s assets, earnings, potential future cash flow, and other factors.

For example, imagine a company that makes a steady profit year after year. One bad earnings report or negative news could temporarily lower its stock price, even though the company’s long-term potential remains strong. This presents an opportunity for investors to buy shares cheaply before the stock price rebounds.

Think of undervalued stocks like a high-quality jacket on sale. The jacket hasn’t lost any of its value; it’s just temporarily underpriced.

However, identifying undervalued stocks takes effort. Analysts often look at metrics like the price-to-earnings (P/E) ratio, which compares a stock's price to its earnings, or the price-to-sales (P/S) ratio, which measures market value against company revenue. If these numbers are lower than industry averages, the stock might be considered undervalued.

Why Consider Undervalued Stocks?

Long-Term Growth Potential

Undervalued stocks aren’t about quick flips; they’re investments for the long haul. Buying a stock below its intrinsic value means you’re betting on the company’s recovery and future growth. Over time, as market sentiment improves, the value could increase significantly.

For example, Intel (INTC), one of the world’s largest semiconductor makers, has faced challenges in recent years. Despite this, its focus on advanced chip innovation and new technologies has analysts optimistic about its future.

Reduced Risk Compared to Overhyped Stocks

While no investment is entirely risk-free, undervalued stocks tend to carry less risk than overhyped ones trading at inflated prices. These stocks typically have strong foundations, making them less likely to face extreme declines.

For instance, Target Corporation (TGT), a beloved U.S. retailer, saw its stock decline due to reduced consumer spending in 2024. However, its long-term brand loyalty and robust sales strategy position it for potential recovery in 2025.

Diversification and Balance

Adding undervalued stocks to your portfolio can provide balance. Alongside higher-risk growth stocks or dividend-paying options, undervalued stocks offer a practical way to pursue both growth and security.

Examples of Undervalued Stocks for 2025

Using recent analysis from financial experts, here are some undervalued stocks poised for growth in the upcoming year.

1. Intel Corporation (INTC)

  • Sector: Technology (Semiconductors)
  • Reason for Being Undervalued: Competition from rivals like AMD and NVIDIA as well as delays in adopting new technologies contributed to Intel's struggles over recent years.
  • Growth Potential: Supported by government initiatives like the CHIPS Act, Intel is reinvesting in its manufacturing capabilities and AI-driven advancements. Its attractive P/E ratio and commitment to innovation make it a strong contender for a rebound.

2. Target Corporation (TGT)

  • Sector: Retail
  • Reason for Being Undervalued: Target was hit by inventory challenges and slower consumer spending in 2024, which hurt its short-term results.
  • Growth Potential: Its strategy to streamline operations, coupled with improving same-store sales trends, positions the company to bounce back as spending stabilizes. With a dividend yield of 3.3%, it also offers income opportunities for investors.

3. Salesforce, Inc. (CRM)

  • Sector: Technology (Cloud Computing)
  • Reason for Being Undervalued: Investors recently worried about Salesforce's high valuation, leading to a dip in its stock price.
  • Growth Potential: Salesforce remains the leader in customer relationship management software, and its focus on AI-powered tools has positioned it well to benefit from ongoing digital transformation trends.

4. Qualcomm (QCOM)

  • Sector: Technology (Semiconductors and Telecommunications)
  • Reason for Being Undervalued: The stock suffered from downbeat market sentiment, despite maintaining a strong position in 5G technology.
  • Growth Potential: Qualcomm’s chips are fundamental to premium smartphones, and its licensing revenue solidifies its market advantage. Analysts view its forward-looking technology as a promising growth driver.

5. ServiceNow (NOW)

  • Sector: Software/Tech
  • Reason for Being Undervalued: Slower enterprise spending created temporary headwinds.
  • Growth Potential: Renowned for its IT management solutions, ServiceNow’s excellent reputation and client retention rates (98%) speak to a business built for long-term growth.

How to Incorporate Undervalued Stocks Into Your Portfolio

Now that you have a list of promising undervalued stocks, how do you add them to your portfolio? Here are some tips to get started.

Do Your Own Research

While expert recommendations are helpful, it’s important to review company financials and reports yourself. Check whether a stock aligns with your goals and whether its valuation metrics truly stand out.

Use Dollar-Cost Averaging

If you’re uncertain about timing, consider investing gradually over time. Dollar-cost averaging helps reduce the risk of buying at the wrong price by spreading your purchases.

Diversify

Don’t put all your money into one stock—even if it looks like a winner. Spread your investments across a variety of stocks and sectors to minimize risk.

Think Long-Term

Patience is key when investing in undervalued stocks. Focus on the company’s fundamentals, and avoid getting distracted by short-term volatility.