In this article, we will look at the 10 Most Undervalued High-Quality Stocks to Buy According to Analysts.
Is a Market Rally Around The Corner?
In one of our recent articles, titled 11 Best Undervalued Stocks to Invest in Now, we talked about how the recent tariffs have caused a slowdown in the market and are likely to cause inflation. Here’s a piece from the article:
“Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.”
On March 6, Tom Lee, managing partner and head of research at Fundstrat Global Advisors appeared on a CNBC interview to talk about how the market is likely to proceed forward from here. Lee stated that he is still optimistic about the market, he acknowledged that investors are sitting out at the moment as they are trying to assess the severity of these tariffs. However as a result the market is seeing a big price correction and a decline in sentiment. Moreover, Lee noted that we also had a bad ADP jobs report and the market is going up on bad news which he believes is good for the market.
Lee explained what has happened during the six weeks essentially represents a bear market that has swept through sentiment and positioning because if we look at the hedge funds positioning it has almost gone neutral. Lee believes because of this the current and two upcoming months can be huge rally months, where the market can be rallying as much as 10% to 15%.
While answering the question of whether this slowdown is a Buy, Lee noted that the 10 best days happen every year for the market. Last year the 10 best days of the year added up to 21% to the S&P 500, excluding these 10 days the market was only up 4%. He explained that markets don’t get 20% gains throughout the year, it is those 10 best days where the market rallies the most. Lee thinks that these 10 best days for 2025 are near because if the economy is near stall speed, the “Trump Put” will come back, otherwise, the market has to unwind all this austerity. Moreover, if the job market is soft, the “Fed Put” comes back into play, because the Fed does not want the stall speed to linger. Lee thinks these two things are going to be the positive catalysts in the next couple of weeks.
With that let’s take a look at the 10 most undervalued high-quality stocks to buy according to analysts.
A trader at a stock exchange, vigorously watching the stocks’ trends in the stock market.
Our Methodology
To compile the list of the 10 most undervalued high-quality stocks to buy according to analysts, we used the iShares MSCI USA Quality Factor ETF. Using the ETF we aggregated a list of high-quality stocks trading below the S&P 500’s forward P/E ratio of 22 as per the Wall Street Journal. Next, we checked the analyst upside potential for each stock from CNN and ranked the stocks in ascending order of the upside potential. We have also added the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 hedge funds database. Please note that the data was collected on March 6, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Most Undervalued High-Quality Stocks to Buy According to Analysts
10. Caterpillar Inc. (NYSE:CAT)
Forward P/E Ratio: 16.13
Number of Hedge Fund Holders: 62
Analyst Upside Potential: 14.48%
Caterpillar Inc. (NYSE:CAT) is a major company that makes and sells several types of equipment and engines. It produces construction and mining equipment including bulldozers, excavators, and loaders. Moreover, the company also produces diesel and natural gas engines for various applications, including machinery and power generation. It operates through three main areas including Construction Industries, Resource Industries, and Energy and Transportation Industries.
Caterpillar Inc. (NYSE:CAT) has been facing weaker demand due to the high cost of borrowing and inflation. During the fiscal fourth quarter of 2024, the company reported a 5% year-over-year drop in sales with operating margins falling from 18.4% last year to 18% during the fourth quarter of 2024. On the bright side, regardless of the drop in revenue the company still generated around $12.0 billion in enterprise operating cash flow. Moreover, on February 4, DA Davidson raised the firm’s price target on the stock from $350 to $357, while keeping a Neutral rating. It ranks as one of the most undervalued high-quality stocks to buy according to analysts.
Diamond Hill Large Cap Strategy stated the following regarding Caterpillar Inc. (NYSE:CAT) in its Q3 2024 investor letter:
“Other top Q3 contributors included HCA Healthcare and Caterpillar Inc. (NYSE:CAT). Heavy construction machinery manufacturer Caterpillar has held up better than industry peers against a challenging macroeconomic backdrop and a generally slowing construction environment.”
9. Lockheed Martin Corporation (NYSE:LMT)
Forward P/E Ratio: 16.49
Number of Hedge Fund Holders: 65
Analyst Upside Potential: 15.11%
Lockheed Martin Corporation (NYSE:LMT) is a leading international aerospace and defense company. The company operates through four main business segments including Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. On February 14, Gautam Khanna from TD Cowen maintained a Buy rating on the stock with a price target of $520.
During the fiscal year 2024, Lockheed Martin Corporation (NYSE:LMT) grew its sales by 5%. Moreover, the company reached a record backlog of $176 billion, indicating strong future demand. More notably, all four business areas had a book-to-bill ratio greater than 1, showing more orders were received than fulfilled. The company gained the spotlight by delivering 110 F-35 aircraft in 2024, which was the high end of its expected range. Looking ahead, Lockheed Martin Corporation (NYSE:LMT) expects to make around 170 to 190 F-35 deliveries in 2025. It is one of the most undervalued high-quality stocks to buy according to analysts.
Ariel Focus Fund stated the following regarding Lockheed Martin Corporation (NYSE:LMT) in its Q4 2024 investor letter:
“Shares of leading global defense contractor Lockheed Martin Corporation (NYSE:LMT) also traded lower returning some of its third quarter gains. Although earnings were solid, investor uncertainty tied to ongoing F-35 contract negotiations and software delays overshadowed the company’s robust order backlog and return of capital to shareholders via share repurchases and dividends. In our view, LMT continues to be well positioned in the defense sector.”
