On February 24, Kayne Anderson Rudnick chief market strategist Julie Biel joined ‘The Exchange’ on CNBC to discuss her thoughts on how good quality companies can ride out turbulence in the market. Just like Warren Buffett and Charlie Munger, Biel also suggests inaction as an investment principle and believes that holding high-quality companies can help investors deal with market volatility. She emphasized conviction in investing instead of impulsive decision-making. Biel also noted the general resilience of the US economy, which mainly comes from a robust jobs market as it fuels the consumer-driven economy. She also expressed unease over the limited tools available to address a potential recession that could come from high levels of deficit spending. She thinks inefficient businesses should be allowed to fail while protecting employees during economic cycles.
Biel addressed small-cap stocks and explained that they struggle due to their higher leverage and sensitivity to prolonged higher interest rates. They often include significant exposure to real estate and banking sectors and have a high proportion of non-earning companies. She then emphasized that even if one were to invest in small caps, the ideal approach would be to look at high-quality small-cap companies that can yield strong results. Biel’s stock picks are quality companies that focus on tangible and physical solutions instead of those with foundations in hyped technologies like AI. While she acknowledged AI’s potential, she argued that it’s becoming standard and can no longer be categorized as a differentiator.
That being said, we’re here with a list of the 11 most undervalued quality stocks to buy now.
An overhead view of a bustling stock exchange, with brokers and traders exchanging stocks.
Our Methodology
We sifted through the Vanguard U.S. Quality Factor ETF holdings to compile a list of the top stocks that had a forward P/E ratio under 15 as of April 14. We then selected the 11 undervalued stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
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).
11 Most Undervalued Quality Stocks to Buy Now
11. Ameriprise Financial Inc. (NYSE:AMP)
Forward P/E Ratio as of April 14: 12.47
Number of Hedge Fund Holders: 47
Ameriprise Financial Inc. (NYSE:AMP) is a diversified financial services company that offers financial planning and advice services to individual and institutional clients. It operates through Advice & Wealth Management, Asset Management, and Retirement & Protection Solutions segments. It was formerly known as American Express Financial Corporation until September 2005.
In 2024, the company’s Wealth Management segment had its client assets hit $1 trillion. This was a record for the segment and marked an improvement of 14% year-over-year. It was fueled by the wrap asset platform, which now manages $574 billion. This marks an 18% increase and makes it one of the largest in the industry. Transactional activity is also up 17% year-over-year due to increased client engagement.
Ameriprise Financial Inc. (NYSE:AMP) is seeing a shift of client money from term products to wrap products. It’s actively investing in its technology platform, such as digital tools, CRM, and data analytics to enhance advisor productivity and client relationships. The company also attracted 91 experienced advisors in Q4 2024. This expansion is expected to continue throughout 2025.
Aristotle Value Equity Strategy applauded the company’s strong financial performance and made the following comment about Ameriprise Financial, Inc. (NYSE:AMP) in its Q4 2022 investor letter:
“Ameriprise Financial, Inc. (NYSE:AMP), the investment management firm, was a top contributor for the quarter. During our time as shareholders, Ameriprise has continued to execute on its transformation into an important player in the asset and wealth management industry (and away from insurance products). Today the Advice & Wealth Management segment, combined with the Asset Management segment, account for nearly 80% of the company’s revenues. This has served to de-risk its business model, unlock excess capital (of which it returned $632 million to shareholders during the quarter) and improve returns on equity, which are now in excess of 47%. In addition, the company takes pride in its ability to attract and retain financial advisors, providing them the tools to build relationships with clients. The market volatility during the year, in our view, has given ample opportunity for Ameriprise’s advisors to demonstrate the value their services can provide for clients.”
10. Equitable Holdings Inc. (NYSE:EQH)
Forward P/E Ratio as of April 14: 6.22
Number of Hedge Fund Holders: 47
Equitable Holdings Inc. (NYSE:EQH) is a diversified financial services company that operates through six segments: Individual Retirement, Group Retirement, Asset Management, Protection Solutions, Wealth Management, and Legacy. The company was formerly known as AXA Equitable Holdings Inc. until January 2020.
The company’s Wealth Management segment was marked by record Assets Under Advisement (AUA) and net flows in 2024. The segment saw $4 billion in net inflows for the full year. This is attributed to the segment’s ‘supported independence’ model, which resonates with both advisors and clients. This model in wealth management allows financial advisors to operate with some extent of autonomy. So they essentially operate like independent contractors, but have access to the resources, technology, and support of a larger firm.
The Wealth and Asset Management segments together contributed to over 50% of the $1.5 billion in cash flow generated to the holding company. There was a 10% increase in the wealth planner count at the company. This was because of a record number of experienced advisors joining Equitable Holdings Inc. (NYSE:EQH) in 2024. A new Head of Business Development was also brought on board to enhance recruitment strategies.
9. Target Corp. (NYSE:TGT)
Forward P/E Ratio as of April 14: 10.22
Number of Hedge Fund Holders: 56
Target Corp. (NYSE:TGT) is a general merchandise retailer in the US. It sells merchandise through periodic design and creative partnerships, shop-in-shop experience, and in-store amenities. It sells its products through its stores and digital channels like Target.com. Notably, it’s the fifth-largest digital grocer in the US.
Tar-zhay is a term coined by customers for Target’s emphasis on affordable and on-trend products. The company’s merchandising, or Tar-zhay strategy hinges on a unique product mix, such as a $31 billion portfolio of owned brands. About 25% of these exclusive brands generate at least $1 billion in annual sales. This assortment directly translates to increased customer traffic. For instance, the company saw ~7% sales growth and share gains in its Beauty segment.
The company actively engages with trends, which is highlighted by the record-breaking sales of its Taylor Swift exclusives recently. In January alone, Target Corp. (NYSE:TGT) introduced 2,000 new wellness products, with 600 being exclusive to the company. The company’s online marketplace called Target Plus has also grown to a $1 billion business and features more than 1,500 trusted partners and shows double-digit growth.
8. Bank of New York Mellon Corp. (NYSE:BK)
Forward P/E Ratio as of April 14: 11.43
Number of Hedge Fund Holders: 59
Bank of New York Mellon Corp. (NYSE:BK) provides financial products and services internationally. It operates through Securities Services, Market & Wealth Services, Investment & Wealth Management, and other segments. It serves central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities high net-worth individuals, and family offices.
Pershing is a key component of the company’s Market & Wealth Services segment and provides brokerage and clearing solutions to financial advisors and institutions by using the company’s platforms and technology. In Q4 2024, Pershing investment services fees increased by 9% year-over-year. The segment reported net new assets of $41 billion, which included a substantial client onboarding during this quarter.
Pershing contributed to the overall performance of the Market & Wealth Services segment, which recorded a 12% year-over-year increase in total investment services fees. This growth underscores this segment’s role in Bank of New York Mellon Corp.’s (NYSE:BK) overall strategy to drive revenue and profitability.
Parnassus Value Equity Fund stated the following regarding The Bank of New York Mellon Corporation (NYSE:BK) in its Q3 2024 investor letter:
“The Bank of New York Mellon Corporation (NYSE:BK) posted better-than-expected second-quarter profit and revenue, driven in part by higher fees. Further, the Federal Reserve’s interest rate cut is expected to reduce funding costs and improve BNY’s margins.”
7. State Street Corp. (NYSE:STT)
Forward P/E Ratio as of April 14: 8.22
Number of Hedge Fund Holders: 61
State Street Corp. (NYSE:STT) provides financial products and services to institutional investors worldwide. It offers investment servicing products and services, such as custody, accounting & fund administration services, recordkeeping, client reporting, investor services operations outsourcing, financial data management, and other similar services and products.
The company’s Net Interest Income (NII) is a primary driver of its overall growth. The company expects deposit levels to remain between $230 and $240 billion as it enters the first quarter of 2025. While noninterest-bearing deposits rose slightly in Q4 2024, it’s down 12% when compared to the year-ago period. Loan growth also significantly fuels NII and reached 14% in 2024. This growth relies on lending to private market clients, which make up over two-thirds of the company’s total loans.
State Street Corp. (NYSE:STT) is now focused on growing its fee-based business. Its servicing fee sales have risen by 45% since 2022, and 250% since 2020, which came from restructuring the sales team and realigning incentives. The company expects to continue to reach its 2025 target of $350 to $400 million in servicing fee sales.
6. OG Resources Inc. (NYSE:EOG)
Forward P/E Ratio as of April 14: 10.05
Number of Hedge Fund Holders: 62
EOG Resources Inc. (NYSE:EOG) explores, develops, produces, and markets crude oil, natural gas liquids, and natural gas in producing basins mainly in the US, the Republic of Trinidad and Tobago, and internationally. The exploration and production of oil and natural gas drive the majority of the company’s revenue.
The company holds more than 10 billion barrels of oil equivalent, with an average after-tax rate of return that exceeds 55% based on $45 oil and $2.50 natural gas. In 2024, the company’s production exceeded forecasts, with oil volume growing by 3% and total production by 8%. The proved reserves increased by 6% to 4.7 billion barrels of oil equivalent. The company reduced average well costs by 6% this year.
In the Delaware Basin, it increased drill feet per day by 10% and completed feet per day by 20%. Utica operations saw a 50% increase in drilled feet per day. The Dorado operations saw a 15% increase in both drilled feet per day and completed lateral feet per day. OG Resources Inc. (NYSE:EOG) has also invested in infrastructure. Instances include the Verde pipeline (1 Bcf/day capacity) and the Janus natural gas processing plant (300 million cubic feet/day capacity).
5. Gilead Sciences Inc. (NASDAQ:GILD)
Forward P/E Ratio as of April 14: 13.12
Number of Hedge Fund Holders: 74
Gilead Sciences Inc. (NASDAQ:GILD) is a biopharmaceutical company that discovers, develops, and commercializes medicines in the areas of unmet medical need. It provides treatment of HIV/AIDS, COVID-19, and viral hepatitis. It also offers products for the treatment of oncology, pulmonary arterial hypertension, and serious invasive fungal infections.
The HIV treatment market grew by ~3% in 2024, while the prevention market saw a 16% increase in Q4 alone. The company’s HIV business showed growth in 2024, with full-year HIV sales reaching $19.6 billion. This was an 8% increase year-over-year, which was attributed to the success of Biktarvy. This is a leading HIV treatment, which saw a 13% sales surge. Biktarvy holds over 50% of the US market share.
Another key product called Descovy is used for HIV prevention (PrEP) and showed 21% year-over-year growth. It holds more than 40% of the US market share. Gilead Sciences Inc. (NASDAQ:GILD) is now developing lenacapavir for twice-yearly HIV prevention with regulatory filings underway in the US and Europe. The company aims to introduce up to seven new HIV treatment options and two prevention options by 2033, including long-acting formulations.
ClearBridge Value Strategy stated the following regarding Gilead Sciences, Inc. (NASDAQ:GILD) in its Q1 2025 investor letter:
“Health care stocks populated our top performers for the quarter. Biopharmaceutical company Gilead Sciences, Inc. (NASDAQ:GILD) announced strong fourth-quarter earnings growth and also rose both on news that its HIV prevention treatment drug Lenacapavir had been filed for U.S. approval, with an anticipated launch scheduled for mid-2025, and on positive reception to its cirrhosis of the liver treatment Livdelzi in its first full quarter.”
4. Qualcomm Inc. (NASDAQ:QCOM)
Forward P/E Ratio as of April 14: 11.98
Number of Hedge Fund Holders: 79
Qualcomm Inc. (NASDAQ:QCOM) develops and commercializes foundational technologies for the wireless industry. It operates through three segments: Qualcomm CDMA Technologies (QCT), Qualcomm Technology Licensing (QTL), and Qualcomm Strategic Initiatives (QSI). It also provides development, services and sells products to the US government agencies and their contractors.
On March 11, TD Cowen analyst Joshua Buchalter maintained a Buy rating on the company with a $195 price target. The analyst is optimistic about the company’s ability to expand its business beyond the traditional handset market. The firm thinks that Qualcomm’s focus on low-power and connectivity-focused product portfolio will help it tap into high-growth opportunities within the IoT and automotive sectors.
However, Qualcomm’s chipset business within its QCT (Qualcomm CDMA Technologies) generates most of its revenue, particularly the handset sales. In FQ1 2025, QCT achieved record revenues of $10.1 billion. Handset revenues alone reached a record $7.6 billion, which was up 13% year-over-year. For FQ2, Qualcomm Inc. (NASDAQ:QCOM) projects QCT handset revenues to increase by ~10%, which will be driven by the increased shipments of the Samsung Galaxy S25 smartphones.
Nightview Capital is bullish on the company due to its shift into high-growth automotive and IoT markets. It stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its Q4 2024 investor letter:
“Semiconductors are the unsung heroes of the modern economy, powering everything from AI and 5G to electric vehicles and renewable energy systems. Without them, innovation stalls. The semiconductor industry has entered a supercycle, driven by unprecedented demand across industries that rely on advanced computing. And while this notoriously boom and bust industry has seen cycles before we believe this cycle remains in relative infancy.
These advancements aren’t incremental. As AI systems scale, the need for cutting-edge semiconductors will only accelerate. We believe the companies at the forefront of this revolution are foundational to the next wave of global progress.
Qualcomm Inc. (QCOM): Core Opportunity: Qualcomm is transitioning beyond its traditional handset business, focusing on high-growth markets in Automotive and Internet of Things to drive future revenue streams. We have already seen this strategy flowing through the PnL and we are confident in the firm’s execution abilities going forward.
Competitive Advantage: Automotive Strength: Automotive revenue rose ~55% in FY 2024 to $2.9 billion, further supported by over 10 new design wins with global automakers for advanced driver-assistance systems (ADAS), connectivity, and digital cockpit solutions.
IoT Growth: IoT revenue reached $1.4 billion, reflecting steady traction in smart devices and industrial applications…” (Click here to read the full text)
3. Merck & Co Inc. (NYSE:MRK)
Forward P/E Ratio as of April 14: 8.8
Number of Hedge Fund Holders: 91
Merck & Co Inc. (NYSE:MRK) is a pharmaceutical and animal health healthcare company. It offers human health pharmaceuticals for areas like oncology, vaccines, hospital acute care, cardiovascular, virology, neuroscience, and diabetes. It also offers veterinary pharmaceuticals, vaccines, and health management solutions and services.
On February 24, DBS analyst Nico Chen maintained a $100 price target on the company while reiterating a Buy rating. The analyst’s sentiment primarily came from Keytruda’s rapid growth. Keytruda is Merck’s blockbuster anti-PD-1 therapy which is used in the treatment of multiple cancer types. Keytruda sales rose by 18% year-over-year in 2024 to generate a total of $29.5 billion. In Q4 alone, these sales rose by 21% and made $7.8 billion.
Keytruda sales are driven by global demand across both metastatic and earlier-stage cancers. Merck & Co. (NYSE:MRK) has secured regulatory approvals for Keytruda-based regimens in China, Japan, and the US. It will now be seeking regulatory approval for other treatments by mid-2025. One of these includes the investigational doravirine/islatravir (DOR/ISL) two-drug HIV-1 regimen. This treatment proved as effective as standard therapies in two studies of adults with controlled HIV after 48 weeks.
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.”
2. PayPal Holdings Inc. (NASDAQ:PYPL)
Forward P/E Ratio as of April 14: 12.52
Number of Hedge Fund Holders: 94
PayPal Holdings Inc. (NASDAQ:PYPL) operates a tech platform that enables digital payments for merchants and consumers. It operates a two-sided network that connects merchants and consumers. It enables customers to connect, transact, and send and receive payments online and in person, as well as transfer and withdraw funds using various funding sources, such as bank accounts or Venmo.
In 2024, the company’s branded checkout segment saw consistent quarterly growth in transaction margin dollars. US growth in particular accelerated during the fourth quarter of this year. Upgraded checkout experiences, which are now live for more than 25% of US traffic, reduced latency by 40%, and boosted conversion rates by 1%. Fastlane, which is the company’s streamlined checkout feature, also reached ~2,000 merchants and attracted 75% new or re-engaged PayPal users.
The Buy Now, Pay Later (BNPL) segment of the company had $33 billion in total payment volume, which marked a 21% year-over-year increase in 2024. BNPL users spend 30% more on average as compared to the rest of PayPal Holdings Inc.’s (NASDAQ:PYPL) users. For 2025, the company plans to expand globally and deepen merchant partnerships, while growing its omnichannel presence.
Longleaf Partners Fund stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q4 2024 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL) – Digital payments platform PayPal was a contributor for the quarter and the year. The company delivered strong results, with gross margin dollars continuing to grow in the mid-high single digits for the last few quarters. Effective cost management further contributed to double-digit FCF growth, a key metric in our analysis. PayPal also demonstrated its commitment to enhancing shareholder value by repurchasing shares at a 10% annualized basis in the most recent quarter, leading to even stronger FCF per share growth. Much of what we envisioned at our initial investment has materialized quicker than anticipated. This strong performance has been driven by the improved leadership of relatively new CEO Alex Chriss.”
1. Wells Fargo & Co. (NYSE:WFC)
Forward P/E Ratio as of April 14: 10.93
Number of Hedge Fund Holders: 96
Wells Fargo & Co. (NYSE:WFC) is a financial services company. It has four segments: Consumer Banking & Lending, Commercial Banking, Corporate & Investment Banking, and Wealth & Investment Management. It also operates through financial advisors in brokerage and wealth offices, consumer bank branches, independent offices, and digitally through WellsTrade and Intuitive Investor.
The company’s revenue in the Consumer Small & Business Banking area fell by 2% year-over-year in 2024. This was attributed to higher deposit costs which shows that customers are shifting towards higher-yielding deposit products. However, deposit balances grew year-over-year and marked the first such increase since Q4 2022.
The company’s debit card spending remained strong and was up 4% year-over-year. The credit card business grew by 2% due to higher loan balances. Wells Fargo & Co. (NYSE:WFC) is now investing in refurbishing branches and enhancing digital and branch account opening experiences to improve customer experiences and drive new account growth. It’s also growing its card business with the help of investments that increase balances and spending.
Hotchkis & Wiley Large Cap Fundamental Value Fund stated the following regarding Wells Fargo & Company (NYSE:WFC) in its Q4 2024 investor letter:
“Wells Fargo & Company (NYSE:WFC) is one of the nation’s largest depositories and banks by assets. In addition to having a very high market share of deposits, they also enjoy high market share within the geographies they operate in such as western and southeastern US. In our opinion, WFC is one of the best franchises in banking with a history of very high returns on assets and equity. Performance over the quarter was strong due to potential deregulation with the onboarding of a new presidential regime and speculation that the company’s asset cap could be lifted as early as 1H25.”
While we acknowledge the growth potential of Wells Fargo & Co. (NYSE:WFC), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than WFC but that trades at less than 5 times its earnings, check out our report about this cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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