This article looks at the 10 best undervalued stocks to buy according to Reddit. If interested, read our recent piece on the 10 Most Undervalued Stocks to Buy for Under $20.
Retail investors often discuss their investments on platforms such as Reddit and have become a major market force in recent years. According to a report, inflows from retail investors in the stock market between 2014 and 2019 averaged around $200 million, with a peak of $730 million in 2015. The figure spiked to $1.2 billion in 2020, with daily flows reaching $1.48 billion in 2021. Over the next couple of years, the value of inflows hovered between $1-1.4 billion per day, driven by commission-free online trading platforms and stimulus payments from the government. The surge in investor inflows is also owed to the pandemic, during which low interest rates and bond purchases by the Federal Reserve pumped heavy money into the American financial system.
The year 2024 has already been a healthy year for the American stock market, driven by a strong performance by technology stocks. Tom Lee, the co-founder and head of research at Fundstrat Global Advisors, is bullish on the ongoing fiscal year and anticipates the market to triple in size by the end of the decade.
The two major factors driving Lee’s bullish projection were the global labor shortage and a surge in the population of millennials. He mentions how millennials are the largest generation shaping the economy and are set to inherit big as we approach the generational wealth transfer of at least $80 trillion. According to a report, by 2030, millennials will have five times more wealth compared to what they have today. Moreover, the past two incidents of global labor shortage led to major spikes in technology stocks, and Lee is expecting the same again this time. However, he also warns of risks that could undermine his positive outlook, including AI backfiring, global recession, and geopolitical instability.
This uncertainty about the stock market, coupled with stocks’ volatility, makes it difficult for investors to ascertain the true value of the stock they want to invest in. American billionaire hedge fund manager, Bill Ackman, in May this year, discussed the current state of value investors and acknowledged that predicting the durability of a stock is far harder than building a financial model in the world of investment. Responding to a question about the use of AI to analyze stock investments and financial markets, Ackman stated that AI platforms might help in decision-making over the short run, but there is no guarantee that they would continue working over the long run.
Value investors purchase stocks they believe have a high value but their share prices do not reflect the stock’s actual worth, aiming to benefit when the market corrects itself. If the correct stocks are picked, it can lead to hefty returns for the investors through share price performance. One way of picking out the right stocks is noticing what the hedge funds are doing. Insider Monkey regularly covers top hedge fund stocks across industries for each quarter, and you can keep up with the information by following our website and subscribing to our newsletter. One such example is the 10 Best Aerospace and Defense Stocks to Buy Now.
Photo by Pascal Bernardon on Unsplash
Methodology
We went through several threads on Reddit to identify the most talked about top undervalued stocks according to investors on the platform. After gathering a list of companies, we went through a stock screener to verify that these stocks were undervalued. Then we sorted and listed the stocks in ascending order of how frequently they were mentioned on Reddit for being undervalued. In cases where two or more stocks were level on the metric, we outranked one over the other based on hedge fund sentiment about the stocks in question. Insider Monkey’s database of 920 hedge funds for Q1 2024 was used for that purpose.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Let’s now head over to the list of the best undervalued stocks to buy according to Reddit.
10 Best Undervalued Stocks to Buy According to Reddit:
10. Ford Motor Company (NYSE:F)
Investors on Reddit that consider the stock undervalued: 2
Ford Motor Company (NYSE:F) is an American automobile company founded in 1903. It sells commercial vehicles under the Ford brand, and luxury cars under its Lincoln brand. The company has had inconsistent returns over the last few years — 136% in 2021, followed by a significant drop of -44% in 2022 largely due to high losses in its EV business unit, labor crisis, and inflated warranty costs, before rising again to 5% in 2023. As a result, over the last couple of years, the stock lost its share value by 16%.
However, the company is staging a recovery this year, with the share price having grown 15% year-to-date, driven by strong sales of its trucks, especially the F-150 series. The EV market has also slowed down. Previously, the company was under fire for its slow pace of transition, but now, with the market cooling down a little, Ford Motor Company (NYSE:F) can afford time to focus more on its gas-based vehicles, while also moderately working on its EV developments.
For the first quarter of 2024, Ford Motor Company (NYSE:F) reported an EPS of $0.49 per share, beating analysts’ expectations of $0.42. Owing to the improved results in the quarter, the company readjusted its expectation of free cash flow for the year to between $6.5-7.5 billion, from the earlier outlook of $6-$7 billion.
Despite the stock showing signs of improvement, with the share price growing 20% over the past month, investors on Reddit believe that Ford Motor Company (NYSE:F) is trading at a lower value compared to the industry. They expect its share price to increase further over the coming months, especially due to the spike in sales of its F-150 trucks. There is also consensus among analysts about the stock’s Buy rating, with an average price target of $14, an upside of 1.1% from its current level. Moreover, according to Insider Monkey, 41 hedge funds were bullish about the company’s prospects as of Q1 2024, reiterating the opinions of investors on Reddit that it is one of the best undervalued stocks to buy.
In contrast, there are also bear cases against the stock. The first stems from the macroeconomic situation in the United States. If the economy goes into recession, the automobile industry is likely to experience selling pressure. The second reason is the United Auto Workers (UAW) strike of 2023, which ended at the expense of a massive price tag to be borne by automakers. Ford Motor Company (NYSE:F) is expecting $8.8 billion in additional costs through mid-2028, with the incremental cost per vehicle rising to $900 by 2028 under the new contract, which is likely to dent the company’s EBITDA margins.
9. Plug Power Inc. (NASDAQ:PLUG)
Investors on Reddit that consider the stock undervalued: 3
Plug Power Inc. (NASDAQ:PLUG) is an American company that manufactures hydrogen fuel cell systems as a replacement for conventional batteries used in equipment and electricity-powered vehicles. Losses continue to dwarf the company’s revenue. During the first quarter of 2024, it posted a loss of close to $300 million as equipment sales dropped and the company awaits the commissioning of its electrolytes systems. The EPS was recorded at -$0.43, missing analysts’ expectations by 11 cents.
However, the company is optimistic that it can raise its revenue from a mere $891 million in 2023 to over $20 billion by 2030, citing the potential of the hydrogen economy, which has seen the Biden administration announcing to spend $7 billion last October in funding for hydrogen hubs across the United States. In May 2024, the US government awarded a $1.66 billion loan to Plug Power Inc. (NASDAQ:PLUG) for work on six green hydrogen production facilities.
According to Insider Monkey’s database, 17 hedge funds are bullish about the stock. There is consensus among analysts on the stock’s Hold rating, with an average share price target of $5.68, an upside of a staggering 82%. It is also one of the best undervalued stocks to buy now, according to investors on Reddit. In January this year, the company launched its new production facility in Georgia which has offered hope to investors of future growth. The new plant is likely to help Plug Power Inc. (NASDAQ:PLUG) ramp up its production to around 40 tons per day by the end of the year, from its current level of 15 tons. There are also plans in the pipeline to establish new facilities in New York and Texas, which is projected to bring down the cost of production to $3-5 per kilogram as per company forecasts.
The bear case for the company is that its business model still appears shaky from an investor’s perspective, considering that it depends heavily on Amazon and Walmart, its two largest customers, for its revenue. While both companies continue to be invested in Plug Power Inc. (NASDAQ:PLUG), whether or not that remains the case over the long run is uncertain.
8. AMC Entertainment Holdings, Inc. (NYSE:AMC)
Investors on Reddit that consider the stock undervalued: 4
AMC Entertainment Holdings, Inc. (NYSE:AMC) is one of the largest theatrical exhibition companies in the world, with 950 theatres and more than 10,000 screens as of March 2022. During the first quarter of 2024, AMC Entertainment Holdings, Inc. (NYSE:AMC) beat analyst expectations by 19% for EPS, having posted -$0.62 per share during the quarter, which was also a major improvement from a loss per share of -$1.51 during Q1 2023. The company’s revenue was also higher than forecasts by industry analysts, measured at $951.4 million.
According to AMC, the quarter’s revenue improvement was largely due to the significant growth in movie-going in March, compared to January and March. However, the company stated that while numbers for the second quarter are expected to be better than the first three months of the year, they are likely to be weaker compared to the previous year, as strikes in the industry delay the release of new movies. This is one of the reasons behind the bearish sentiment among some investors regarding the stock. Another cause of worry for them is that the company is $4.6 billion in debt, of which $2.8 billion is due for repayment soon. The company also faces fierce competition from on-demand streaming services. This is on top of the fact that AMC is heavily dependent on meme-stock rallies, which is not a good look in the long term.
The bullish opinion is otherwise. According to them, AMC Entertainment Holdings, Inc. (NYSE:AMC) appears to be headed on the right track, with its loss per share drastically declining over the last few years, from -$195.80 per share in 2020 to just -$2.37 in 2023, and is forecast to be around -$1.26 per share this year. To improve margins, the company has closed 169 theatres across different regions since 2019, and at the same time opened 60 new theatres in better locations. The new theatres had an EBITDA of around $100 million more than the 169 that closed. As a result, its P/E ratio has improved 72% since 2021 to equal -3.06 last year. CEO Adam Aron is confident about the industry finally recovering from the impact of COVID-19 and expects the market to be ‘roaring hot’ in 2025 and 2026.
It is one of the best undervalued stocks to buy now according to Reddit, with a share price target of $5.95, an upside of 18.29%. Moreover, 17 hedge funds are bullish about the company, according to Insider Monkey.
7. British American Tobacco p.l.c. (NYSE:BTI)
Investors on Reddit that consider the stock undervalued: 4
The British American Tobacco p.l.c. (NYSE:BTI) has been manufacturing and selling cigarettes, nicotine, and other tobacco products across the globe since its establishment in 1902. Headquartered in London, it is among the largest tobacco companies in the world. In 2023, the company reported a 3.1% increase in its organic revenue. Profits from operations were also up 3.1%, while earnings registered a 4% growth driven by an increased focus on efficiencies and new category contribution. Around 3 million new consumers were added during the year, with 1.1 million of them in the fourth quarter alone. The company also highlighted that its new categories, Vuse and Velo, significantly contributed to the overall performance, with their revenues increasing 18% and 21%, respectively.
The financial results showed resilience amid the challenges faced by the company in the wake of evolving industry dynamics, especially within the United States where consumers shift to cheaper brands due to the increasing cost of living and the rise of illicit vape trade. The numbers also reflect the strength of British American Tobacco p.l.c. (NYSE:BTI)’s diverse and multi-category portfolio, with smokeless representing 30% of the company’s overall revenue in 24 markets.
Having said that, the bear case against the stock is that it still sells cigarettes as its main product, the demand for which has been on a consistent decline over the last few years. The company’s production of cigarettes has fallen from roughly 700 billion in 2018 to just 555 billion in 2023, representing a 21% decline. This has led to its share price dropping by over 50% during the period. British American Tobacco p.l.c. (NYSE:BTI) has so far managed to offset the volume reduction by increasing the price of cigarettes, but whether or not this approach works over the long run is dicey at this point. The cigarettes segment is critical to the company as it predominantly supports its huge dividend yield of 9.9%.
On the other hand, the strong show of its new categories has been impressive, as is evident from the financial results of 2023. These categories have become profitable two years ahead of schedule and now contribute significantly toward the company’s overall revenues and earnings. The new products include heated tobacco, vapes, and oral offerings, among others. The company has set a target to generate half of its sales by 2035 from non-combustible products. Considering the progress made by BTI with its new categories, there is good reason to believe that the company may be able to meet its goal, and if it does, the stock will likely be viewed positively by investors. Already, investor sentiment on Reddit suggests the stock is undervalued with upside potential. Industry analysts also have consensus on the stock’s Buy rating, with an average share price target of $38, which is 14.46% higher than its current level. Moreover, according to Insider Monkey, 19 hedge funds are bullish on the stock.
6. Starbucks Corporation (NASDAQ:SBUX)
Investors on Reddit that consider the stock undervalued: 4
Starbucks Corporation (NASDAQ:SBUX) is the world’s largest coffee chain, with nearly 36,000 stores across 80 countries, as of 2022, with plans to increase the tally to 55,000 by 2030. The company’s powerful brand identity coupled with its pricing power offers it immense competitive advantage in the industry. However, the stock has been suffering off late, with the share price nosediving over the past year amid a drop in traffic and store sales due to the company’s stance on the Israel-Hamas conflict in the Middle East.
Another bearish case against the company is the competitiveness of the restaurant industry as a whole, because of which Starbucks Corporation (NASDAQ:SBUX) can not simply rest on its reputation, and has to keep finding ways to enhance customer experience and maintain its status as a market leader. A cause of concern for the coffee giant is the fierce competition it is facing from Luckin Coffee in China, its fastest-growing market. Luckin is already China’s biggest coffee chain, having surpassed Starbucks’ number of stores in the country in 2019.
Despite the challenges, the company remains financially strong. Its operating margin has averaged around 15% over the past decade due to its massive scale. In 2023, Starbucks had an operating cash flow of over $6 billion. In Q2 2024,, the company missed analysts’ earnings expectations, posting $0.68 against forecasts of $0.79. The management conceded during the earnings call that the results were down due to a 4% decline in store sales over the past year and a negative 11% comp growth in China.
Having said that, many believe that once the ongoing headwinds are over, the stock will rebound. Simply Wall Street recently estimated the stock to be 24% undervalued. Several analysts have reiterated their Buy rating for Starbucks Corporation (NASDAQ:SBUX), and have forecasted an average share price target of $93.30 with an upside of 17.70%. Moreover, according to Insider Monkey’s database, 69 hedge funds were bullish about the company in Q1 2024, up from 59 in Q4 2023.
Vulcan Value Partners has cited reasons to invest in Starbucks Corporation (NASDAQ:SBUX) in its first quarter 2024 investor letter:
We are pleased to have purchased Starbucks Corporation (NASDAQ:SBUX) in the first quarter. We have owned the company in the past, and it was a good investment for us. The company has strong brand recognition, global distribution, and outstanding retail real estate. The company generates robust free cash flow and has high returns on invested capital as well as a strong balance sheet. Starbucks has used its financial resources to strengthen its brand and enhance customer loyalty. Additionally, the company has continued to see attractive returns from opening new stores. Stock price volatility over the last year is likely due to management changes, disappointing short-term results, and general hesitancy about consumer spending. We believe that Starbucks’ competitive position remains intact, and its value will continue to compound over our five-year plus time horizon.
5. Pfizer Inc. (NYSE:PFE)
Investors on Reddit that consider the stock undervalued: 11
Pfizer Inc. (NYSE:PFE) has been in business since 1849 and is one of the premier pharmaceutical companies in the world, selling a wide range of drugs and vaccines. The company had a stellar performance during the first quarter of 2024, with operational revenue (exclusive of coronavirus treatments) gaining 11%, driven by an increase in sales of its well-established drugs and a strong show from its recent acquisition, Seagen Inc. The company also smashed analyst estimates, posting an EPS of $0.82 per share, against forecasts of $0.52. This was the fourth successive quarter during which Pfizer Inc. (NYSE:PFE) had beaten industry estimates. Moreover, according to Insider Monkey’s database, Pfizer is the best healthcare stock to buy under $50, with 77 hedge fund holders bullish on the company.
The company has a current trailing P/E ratio of 20.92, fairly lower than the industry average. Both industry analysts and investors on Reddit continue to view the stock as undervalued. There is consensus among analysts on the stock’s Buy rating, with an average target share price of $35.69, which represents an upside of 19%. There is anticipation among investors that its operating margins will further improve and result in a spike in the share price after the company meets its cost-cutting goal of $4 billion. The recent acquisition of a biotechnology company, Seagen Inc., has also raised investors’ expectations.
Parnassus Value Equity Fund stated the following regarding Pfizer Inc. (NYSE:PFE) in its first quarter 2024 investor letter:
During the quarter, we added new positions in Pfizer Inc. (NYSE:PFE), NICE and Charter Communications. We purchased Pfizer to capture the potential upside from any turnaround following the COVID-induced boom-bust cycle of the last few years. Pfizer’s stock price sank by more than 40% in 2023 as COVID-19 vaccine revenues rolled off, providing an attractive entry point for us. The company completed its acquisition of Seagen, which should strengthen Pfizer’s pipeline in antibody-drug conjugates (ADC). Pfizer also offers an attractive dividend yield.
