6 Most Undervalued Stocks In 2021

Key Takeaways:


The stock market has proven to be a competent wealth-building machine for those who respect and abide by a strict process. Today’s most prolific traders and investors are living proof that the convergence of a proper education and a proven system can result in a very lucrative career. That said, there’s more than one way to invest in Wall Street. While day traders depend on timely volatility to incur quick profits, long-term and income investors are more inclined to follow trends that can compound growth over time.

Regardless of their investment strategy, there’s one thing most investors have learned to covet: undervalued stocks. If for nothing else, undervalued stocks suggest they have room to grow. Equities that have demonstrated a unique propensity for upside are great additions to any portfolio, which begs the question: What are the best undervalued stocks to buy now?

Before we get to the best undervalued stocks to buy now, however, let’s first take a look at what an undervalued stock is.

What Is An Undervalued Stock?

The concept of an undervalued stock is more or less subjective. Two different investors with unique strategies can look at a single equity and come to two different conclusions based on its valuation. On the one hand, an undervalued stock may be an equity that has been sold off due to an overreaction from an earnings report. On the other hand, an undervalued stock could just as easily be an equity with plenty of unrealized potential. Either way, underlying fundamentals typically suggest undervalued stocks aren’t priced accurately. When all is said and done, an undervalued stock is simply an equity with room to grow.

What Is Value Investing?

In its simplest form, value investing is the practice of identifying and investing in under-appreciated equities. That’s not to say value investing accounts solely for long-term potential, but rather that the current valuation is attractive, relative to where the stock has already been. Value investors inherently seek out stocks and equities which may currently be acquired at a low cost; some people call it “buying on the dip.” Inversely, the same concept may be applied to “expensive” stocks: Value investors intentionally avoid building positions in “overvalued” stocks for fear of missing out on returns.


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Best undervalued stocks to buy now

Value Vs. Value-Based Investing

Whereas value investing emphasizes undervalued stocks, the concept of value-based investing is centered on personal opinions. Value-based investing brings in a larger element of subjectivity than its value investing counterpart. Consequently, value-based investors have developed a reputation for blazing their own trail, regardless of what market indicators suggest. When exercising a value-based investing strategy, investors prioritize their own opinions on a stock over market fundamentals. As John Li, the co-founder of Fig Loans, is quick to point out, value-based investing is when investments “are made based on the popularity of the stock and the high expectations surrounding it.”

6 Undervalued Stocks To Look Out For In 2021

Investors looking to capitalize on value and increase their potential profit margins should pay special considerations to undervalued stocks. Few strategies are more capable of simultaneously mitigating risk and realizing attractive returns than value investing. Instead of spending valuable time looking at every business on Wall Street, consider the following list of undervalued stocks to look out for in 2021:

  1. General Electric

  2. Apple

  3. Alibaba

  4. General Motors

  5. Qualcomm

  6. Lockheed Martin

General Electric Company (NYSE: GE)

General Electric is one of the most well-known conglomerates on the planet. Technically associated with the industrial sector, GE operates in several different segments: power, renewable energy, aviation, healthcare, and capital. General Electric provides high-tech services globally, with customers primarily centered in and around the United States, Europe, Asia, the Americas, the Middle East, and Africa.

Founded in 1892, the company has more than a century of experience. Established services and products have enabled GE to represent the pinnacle of its respective industries for years. That said, shares of GE topped out at $55.59 as far back as 2000. Since then, GE has seen a slow and steady decline in its valuation. Following a slew of poor business decisions, overextension, and poor management, GE became a shadow of its former self over the last two decades.

Today, shares of GE appear to have bottomed out, and industry consensus believes the company can only go up from here. Following years of underperformance, GE “cleaned house” and is now under new leadership. Debts were cut, segments were sold off to consolidate, and the growing need for renewable energy has increased GE’s price targets. Moving forward, GE will have a lot of tailwinds working in its favor. In particular, the return of aviation and the global focus on net-zero carbon emissions will bring GE into the twenty-first century. If GE can capitalize on its current position, there’s no reason to believe today’s current valuation is anything less than a discount.

Apple Inc. (NASDAQ: AAPL)

Apple needs no introduction, as most people who read this will probably be doing so from an iPhone or MacBook. In addition to their smartphones and personal computers, Apple designs, manufacture, and markets tablets, wearables, and accessories worldwide. Lately, Apple has been growing its presence in the software as a service (SAAS) space to increase recurring revenue streams. Apple’s products and services have elevated it to one of the world’s largest and most popular companies.

You would be hard-pressed to find anyone who has never heard of Apple, which would explain why shares of the company are hovering just below their 52-week high. At approximately $137.39, in fact, shares of Apple aren’t far from their all-time high. Nonetheless, many people view Apple as one of today’s most undervalued stocks, not because of where it has come from, but rather because of where it is going.

To be clear, Apple’s 37.26 price-to-earnings ratio constitutes an “expensive” stock. However, the company appears ready and willing to increase its valuation by breaking into the automotive industry. In a recent announcement, Apple notified media outlets it had formed a strategic partnership with Kia Motors.

According to John Rosevear at The Motley Fool, “Kia and Apple are close to a deal under which Kia will build Apple’s long-rumored electric car in its factory in West Point, Georgia. According to the report, the initial production target is 100,000 vehicles per year starting in 2024, with the potential to expand to a maximum of 400,000 per year.”

News of Apple’s latest electric vehicle aspirations may be just what the company needs to make today’s share price look undervalued. While it’s too soon to tell what the next step holds, it’s a safe bet shares of Apple will be higher in the future if they can manufacture a competitive electric vehicle.

Alibaba Group Holding Limited (NYSE: BABA)

Alibaba has become synonymous with “the Amazon of China.” The giant e-commerce company provides online and mobile commerce businesses, both domestically and internationally. Alibaba offers a wide variety of services: “Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others,” according to Yahoo Finance.

The company was founded in 1999 and was the beneficiary of decades of healthy growth. Most recently, Alibaba benefited from the pandemic, which shook the world and forced more people to stay home. Alibaba’s revenue shot up as more people turned to online platforms for all of their needs. Things were looking great over the course of 2020 until the company hit two major headwinds.

Ant Group, Alibaba’s financial arm, was prevented from going public by Chinese regulators. Shortly after regulators halted the IPO, Jack Ma (the co-founder and former executive chairman of Alibaba Group) was suspected missing. The simultaneous unfolding of these two events sent shares of Alibaba spiraling downward on the New York Stock Exchange in the fourth quarter of 2020.

Shares of Alibaba dropped 42.6% in a matter of months, from $317.14 in October to $222.36 before the end of the year. Since then, prices have rebounded but still represent a value play for long-term growth investors. In fact, the events at the end of 2020 appear to have been overblown, and now look like they have created a great entry point for a dominant company. For starters, Mr. Ma has been found and is back to conducting business as usual.

Additionally, Alibaba’s biggest tailwind is still on the horizon. As a partial owner of Ant Group Co., Alibaba is looking to break into the financial technology (fintech) industry in a big way. Ant Group already owns Alipay, which currently represents one of China’s largest mobile payment applications. It was recently announced the fintech giant might make its long-awaited initial public offering (IPO).

According to Barron’s, “Ant Group is becoming a financial holding company after an agreement with Chinese regulators that finally could clear a path to its initial public offering.”

If Ant Group goes public anytime soon, Alibaba will benefit greatly. The transition to digital payments will increase revenue exponentially and support growth for years to come. News of the agreement with regulators has already increased Alibaba’s share price, but it still represents a good value.

General Motors Company (NYSE: GM)

Despite being one of the world’s largest auto companies, General Motors trades at an attractive valuation. For example, General Motors has a market cap somewhere in the neighborhood of $77 billion with a revenue of $116 billion. Those numbers result from delivering more than five million vehicles to China and the United States in 2020. On the other hand, Tesla delivered 499,550 vehicles globally in 2020 and has a $783 billion market cap with a revenue of $28.2 billion.

Tesla trades at just under $900.00/share, while General Motors comes in at a much more modest $54.25/share. To be clear, it’s not fair to compare the two, but the argument can be made that General Motors is grossly undervalued.

Tesla’s valuation is based largely on Elon Musks’ vision and its market share of electric vehicles. However, General Motors poses a significant threat to Tesla’s future market share. While still trailing, General Motors has every intention of competing in the electric vehicle market. Over the span of five years, GM hopes to launch as many as 30 EV models, not the least of which include the GMC Hummer EV, a Bolt EUV, and the Cadillac LYRIQ. 

Whereas Tesla shares are priced for perfection, shares of GM have a nice runway ahead of them. Provided GM’s vision of EV manufacturing and autonomous strategies prove fruitful, today’s valuation could represent a significant discount for long-term investors.

QUALCOMM Incorporated (NASDAQ: QCOM)

Qualcomm has become synonymous with the world’s greatest digital wireless telecommunications products and services. Advancements in technology ushered in by Qualcomm have contributed more to mobile devices and other wireless products than just about any other company. Most recently, however, Qualcomm’s contributions are facilitating the transition to a fifth-generation mobile network, otherwise known as 5G.

Qualcomm has established itself as a premier 5G product and service provider. In doing so, shares of Qualcomm have increased 142.9% since they bottomed out due to the pandemic last year. Those unfamiliar with what has transpired in the last year may be quick to assume Qualcomm represents anything but a value at the moment. However, it is safe to say the 5G revolution is in its infancy, and Qualcomm is positioned to lead the industry in the transition. As a result, today’s price does represent a significant increase year-over-year, but underlying fundamentals suggest there’s plenty more room to run.

If Qualcomm can remain a major contributor to the 5G revolution, there’s no reason to think share prices are done growing. In fact, if 5G turns out to be the “game-changer” many are expecting, this could be just the beginning of a historic run.

Lockheed Martin Corporation (NYSE: LMT)

Lockheed Martin is a global leader in two highly sought after industries: security and aerospace. Otherwise pigeonholed as one of the world’s leading defense companies, Lockheed Martin operates primarily in four segments: aeronautics, missiles and fire control, rotary and mission systems, and space. Within each segment, Lockheed Martin sets the bar for research, design, development, manufacture, integration, and sustainment of technology systems implemented by governments worldwide.

With many of the company’s resources allocated to the aerospace industry, however, it shouldn’t surprise anyone to learn that Lockheed Martin was hit hard by the pandemic’s onset. As the travel industry shut down, the need for the defense company’s products and services dropped substantially, and so did its valuation. Share prices are down nearly 27.0% from their 2020 highs and now look to represent a good value.

Lockheed Martin has had a rough year but through no fault of its own. The pandemic undercut what was shaping up to be a great 2020. That said, it looks like we are starting to turn a corner on the pandemic. Hospitalizations are dropping, and more people are receiving the vaccine, effectively increasing herd immunity and the likelihood of a global recovery. As the world mends, the travel industry will return in full force. Pent-up demand for air travel will catalyze Lockheed Martin sooner rather than later, and share prices should reflect positive sentiment.

Summary

Undervalued stocks have proven they belong in a diversified portfolio. For that matter, few equities allow investors to tap into more potential than stocks with plenty of room for growth built-in. However, to invest in undervalued stocks, traders need to know which indicators to look into and which valuations actually represent a buying opportunity. Proper due diligence will reveal many undervalued stocks in today’s market, but for those of you with less time, the equities listed above should be a good place to start.


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