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.
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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.”
8. BlackRock, Inc. (NYSE:BLK)
Forward P/E Ratio: 20.07
Number of Hedge Fund Holders: 53
Analyst Upside Potential: 18.75%
BlackRock, Inc. (NYSE:BLK) is an international investment management company that helps individuals, institutions, and governments manage money by investing it in various financial products. It manages money by investing in various types of assets including stocks, bonds, and other investment vehicles. Moreover, the company also offers advanced technology platforms like Aladdin, which helps financial institutions manage their investments and assess risks.
On February 18, Craig Siegenthaler from Bank of America Securities maintained a Buy rating on the stock. BlackRock, Inc. (NYSE:BLK) released its fiscal fourth quarter results for 2024, highlighting record net inflows of $641 billion in 2024, with assets under management (AUM) reaching $11.6 trillion. This growth was driven by strong client activity and strategic acquisitions. In addition, the company also grew its annual revenue by 14% to over $20 billion, with operating income growing by 21%.
Looking ahead, the company aims to maintain organic growth above its 5% target by expanding into high-growth segments like private markets and technology. Moreover, it is also deepening client relationships by offering integrated portfolios and leveraging its technology to provide seamless public and private market solutions. It is one of the most undervalued high-quality stocks to buy according to analysts.
The London Company Large Cap Strategy stated the following regarding BlackRock, Inc. (NYSE:BLK) in its Q3 2024 investor letter:
“BlackRock, Inc. (NYSE:BLK) – Shares of BLK rallied during 3Q as organic growth improved sequentially. Our long-term view of BLK has not changed. In the near-term, strong equity market performance is supportive of AUM and fee growth, and, visibility on declining interest rates is a potential tailwind to the fixed income ETF business. We continue to view BLK as a long-term share gainer with a broad spectrum of solutions, and we appreciate the strong balance sheet and steady capital return.”
7. QUALCOMM Incorporated (NASDAQ:QCOM)
Forward P/E Ratio: 13.16
Number of Hedge Fund Holders: 79
Analyst Upside Potential: 21.14%
QUALCOMM Incorporated (NASDAQ:QCOM) is a leading technology company that specializes in commercializing technologies in the wireless industry. The company is renowned for its semiconductor chips such as the Snapdragon processors. It owns a portfolio of patented technologies which it licenses to other companies as well.
On February 7th, Benchmark Co. analyst Cody Acree maintained a Buy rating on the stock, with a price target of $240. The analyst noted the growth QUALCOMM Incorporated (NASDAQ:QCOM) is making in its IoT, smartphones, and automotive segments. Cody Acree highlighted that the company surpassed chipset sales guidance and also increased year-over-year revenue in key segments.
During the fiscal first quarter of 2025, the company increased its revenue by 17.6% year-over-year to $11.7 billion. This marked the third consecutive quarter of double-digit growth for the company. QUALCOMM Incorporated (NASDAQ:QCOM) has been driving its revenue higher on the back of its QCT segment, which grew 20% year-over-year during the quarter to reach $10.1 billion. It is one of the most undervalued high-quality stocks to buy according to analysts.
Fidelity Dividend Growth Fund stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q3 2024 investor letter:
“At the stock level, QUALCOMM Incorporated (NASDAQ:QCOM) was a major detractor, returning about -14% the past three months. The firm develops and manufactures semiconductors, software and services used in mobile phones, and other wireless technologies. On July 31, the company reported second-quarter results, and issued guidance for Q3, both of which solidly exceeded expectations. The stock slid, however, on concerns about a slow recovery for smartphones. Additionally, shares dipped this quarter in step with other semiconductor-related names.”
6. Merck & Co., Inc. (NYSE:MRK)
Forward P/E Ratio: 10.3
Number of Hedge Fund Holders: 91
Analyst Upside Potential: 23.40%
Merck & Co., Inc. (NYSE:MRK) is a major pharmaceutical company that specializes in developing medicines for both humans and animals. The company is known for its KEYTRUDA treatment, where it continues to make significant investments to increase its lifecycle and market dominance.
On February 24, analyst Nico Chen from DBS maintained a Buy rating on the stock with a price target of $100. The analyst noted that Keytruda is Merck & Co., Inc. (NYSE:MRK)’s flagship oncology drug and has been a significant revenue driver for the company. Its sales have grown substantially, solidifying Merck’s position as a leader in the oncology market. Keytruda continues to expand its global presence, contributing significantly to Merck’s revenue. Moreover, Chen highlighted that the development of sac-TMT, an antibody-drug conjugate for treating advanced non-small cell lung cancer, has received Breakthrough Therapy Designation from the US FDA. This designation could accelerate its market entry, potentially boosting Merck’s share price. The financial prospects are robust, with expectations of accelerated net income growth. It is one of the most undervalued high-quality stocks to buy according to analysts.
GreensKeeper Asset Management stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
5. Alphabet Inc. (NASDAQ:GOOGL)
Forward P/E Ratio: 19.02
Number of Hedge Fund Holders: 234
Analyst Upside Potential: 27.04%
Alphabet Inc. (NASDAQ:GOOGL) is a leading technology company that provides a range of products and services internationally. The company operates through three main segments including Google Services, Google Cloud, and Other Bets. It is known for popular platforms including Google search engine, YouTube, Android, Google Maps, and more.
On March 5, BofA released a statement regarding Alphabet Inc. (NASDAQ:GOOGL). The firm has a Buy rating on the stock, with a price target of $225. BofA noted that Google now processes more than 5 trillion searches annually, a significant increase from the 2 trillion searches reported in 2016. This represents a substantial growth in query volume over the past eight years. Moreover, the query volume has grown at a 12% CAGR from 2016 to 2024. This is notably lower than the 19% CAGR for search revenues during the same period, suggesting that revenue growth has been more influenced by monetization strategies rather than just volume increases. The firm suggested that while strong usage growth has contributed significantly to revenues, improved monetization can add an additional 6 to 7 percentage points of growth annually. Moreover, disclosure of these figures could enhance investor confidence in Google’s ability to leverage new AI technologies effectively over time. Alphabet Inc. (NASDAQ:GOOGL) is one of the most undervalued high-quality stocks to buy according to analysts.
Qualivian Investment Partners, an investment partnership focused on long-only public equities, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
4. Adobe Inc. (NASDAQ:ADBE)
Forward P/E Ratio: 21.87
Number of Hedge Fund Holders: 117
Analyst Upside Potential: 30.75%
Adobe Inc. (NASDAQ:ADBE) is a global technology giant that helps people and businesses create, manage, and deliver digital content across various platforms. On March 5, Barclays analyst Saket Kalia maintained a Buy rating on the stock with a price target of $567.
During the fiscal fourth quarter of 2024, the company achieved a record revenue of $21.51 billion, marking an 11% year-over-year growth both as reported and in constant currency. The Digital Segment revenue was one of the top performers with revenue increasing 12% year-over-year to reach $15.86 billion. Moreover, net new Digital Media Annualized Recurring Revenue exceeded $2.0 billion, marking a significant milestone for the company.
Adobe Inc. (NASDAQ:ADBE) is at the forefront of AI innovations the company released its Adobe Firefly, which allows users to create stunning visuals, text effects, and illustrations with simple text prompts. It has expanded capabilities for real-time AI-assisted edits, video content generation, and 3D asset creation. Polen Focus Growth Strategy in its Q4 2024 investor letter stated that the company came under pressure due to delays in effectively monetizing its generative AI Firefly. However, the fund remains optimistic that even if other open-source platforms develop generative AI companies and professionals will still need Adobe Inc. (NASDAQ:ADBE) to edit content. It is one of the most undervalued high-quality stocks to buy according to analysts.
Polen Focus Growth Strategy stated the following regarding Adobe Inc. (NASDAQ:ADBE) in its Q4 2024 investor letter:
“Zoetis and Adobe Inc. (NASDAQ:ADBE) were also notable absolute detractors. Adobe is another holding that’s come under pressure this year due to concerns about delays in the company’s ability to monetize its generative AI Firefly offering. Our research suggests that even if open-source generative AI tools proliferate, creative professionals will still need to curate and edit that content in Adobe tools.”
3. Applied Materials, Inc. (NASDAQ:AMAT)
Forward P/E Ratio: 16.31
Number of Hedge Fund Holders: 80
Analyst Upside Potential: 31.99%
Applied Materials, Inc. (NASDAQ:AMAT) is a technology company that specializes in providing solutions for manufacturing semiconductor chips and display technologies. It not only designs and manufactures equipment used to make semiconductor chips but also offers support services, spare parts, and automation software to help customers optimize their manufacturing processes. It also operates a Display segment through which it provides equipment for producing displays like LCDs and OLEDs used in TVs, laptops, smartphones, and other devices.
On February 18, Citi raised the firm’s target on the stock from $194 to $202, while keeping a Buy rating. The target price came in after the company posted encouraging results for the fiscal first quarter of 2025. During the first quarter, Applied Materials, Inc. (NASDAQ:AMAT) achieved record revenue of $7.17 billion, marking a 7% increase year-over-year. The growth was driven by its Semiconductor Systems and Applied Global Services segments, with significant contributions from leading-edge foundry logic and advanced packaging technologies.
Looking ahead, the company sees significant opportunities in emerging technologies such as gate-all-around transistors and silicon photonics. Moreover, it is also aiming to expand its market share through innovative solutions and strategic partnerships. It is one of the most undervalued high-quality stocks to buy according to analysts.
Vltava Fund stated the following regarding Applied Materials, Inc. (NASDAQ:AMAT) in its Q4 2024 investor letter:
“In the quarter just ended, we added to the portfolio two new companies from the technology sector: Applied Materials, Inc. (NASDAQ:AMAT) and Lam Research. Both are in the same industry as is another of our investments that we have held for some time, KLA Corporation. This industry is termed semiconductor devices and materials. One chapter in Hidden Investment Treasures is devoted to investing in technology companies and, among other things, the controversy over what really constitutes a technology company. As investors, we try to view technology companies not according to the industry into which they are formally classified but by whether the technologies and technological processes used in the production of their products and services are an essential element in value creation or if they are a source of long-term, sustainable competitive advantage. Among the companies that are formally categorized as technology-based and fall into either the Information Technology or the Communications Services sector, we find some that can be said to be just that but also others for which this classification is at least debatable. Similarly, among companies that do not formally belong to these two sectors, we find many that clearly are built to a large extent on technology and base their market positions and competitiveness on it. In the cases of Applied Materials and Lam Research, there can be no doubt that these are technology companies not only as a formality but also in fact.
Applied Materials provides manufacturing equipment, services, and software for the semiconductor, display, and related industries. Its principal business activities are semiconductor systems and Applied Global Services. Its largest customers are Samsung and Taiwan Semiconductors, but its overall clientele is more diversified than is that of Lam Research. At first glance, it would appear that Applied Materials has a somewhat less tangible and definable competitive advantage compared to KLA Corporation and Lam Research, but the numbers do not support such a view. Net margins likewise in the neighborhood of 27% and ROCE around 30% are outstanding. Basically, it can be said that all three companies we own have very similar underlying profitability metrics. Even their valuations, growth, and potential are similar. All have strong free cash flow and strong balance sheets, and they are regularly buying back their own shares over the long term and in large volumes…” (Click here to read the full text)
2. UnitedHealth Group Incorporated (NYSE:UNH)
Forward P/E Ratio: 15.94
Number of Hedge Fund Holders: 150
Analyst Upside Potential: 33.44%
UnitedHealth Group Incorporated (NYSE:UNH) is a large healthcare company that operates through two main business segments including Optum and UnitedHealthcare. Through Optum the company provides a variety of healthcare services, including data analytics, pharmacy services, healthcare delivery, and population health management. On the other hand, the UnitedHealthcare segment offers health insurance and benefits to different groups.
On March 5, J.P. Morgan analyst Lisa Gill maintained a Buy rating on the stock. The positive outlook from the analyst was based on the recent legal developments involving the company and the Department of Justice. Gill noted that the Special Master’s report recommended granting UnitedHealth Group Incorporated (NYSE:UNH) motion for summary judgment, indicating that the DOJ failed to adequately prove that UnitedHealth knowingly retained overpayments from unsupported diagnosis codes. This suggests a higher burden of proof for the DOJ, which is seen as a positive development for the company.
During the fiscal fourth quarter of 2024, UnitedHealth Group Incorporated (NYSE:UNH) reflected growth across both its business segments. The company grew its 2024 revenue by 8% year-over-year to reach $400.3 billion. The results were driven by growth in domestic consumers served under UnitedHealthcare which grew to 2.1 million and value-based clients served under Optum which grew to 600,000. It is one of the most undervalued high-quality stocks to buy according to analysts.
Polen Focus Growth Strategy stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q4 2024 investor letter:
“We trimmed our positions in UnitedHealth Group Incorporated (NYSE:UNH), Amazon, ServiceNow, and Gartner during the quarter. We trimmed our position in UnitedHealth to fund the purchase of CoStar Group. Despite short-term margin headwinds, our long-term expectations for UnitedHealth Group remain virtually unchanged, with the trim simply reflecting what we view as a superior investment alternative.”
1. ConocoPhillips (NYSE:COP)
Forward P/E Ratio: 11.04
Number of Hedge Fund Holders: 86
Analyst Upside Potential: 43.88%
ConocoPhillips (NYSE:COP) explores, produces, transports, and markets various energy resources such as crude oil, natural gas, natural gas liquids, and liquefied natural gas. It operates in several regions including Alaska, the contiguous United States, Canada, Europe, the Middle East, North Africa, Asia Pacific, and other international locations.
On February 17, Evercore ISI analyst Stephen Richardson reiterated a Buy rating on the stock with a price target of $165.00. During the fiscal fourth quarter of 2024, ConocoPhillips (NYSE:COP) achieved a 4% year-over-year production growth, exceeding their guidance. The growth was driven by a 5% increase in the Lower 48 region and a 3% increase in Alaska and international operations. In a major strategic development, the company completed the acquisition of Marathon Oil, adding high-quality assets to its portfolio. It expects to achieve over $1 billion in synergies by the end of 2025. Looking ahead, the company plans to reduce capital spending by over 15% while maintaining low single-digit production growth. The management is also investing in high-return projects and expects significant cash flow increases from these investments starting in 2026. It is the most undervalued high-quality stock to buy according to analysts.
While we acknowledge the potential of ConocoPhillips (NYSE:COP) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than COP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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