In this article, we will take a look at some of the most undervalued stocks that pay dividends.
Stock prices took a steep hit in March as investors grew concerned about a possible economic downturn, driven by unpredictable tariff policies and signs of slowing job growth. The broader market has dropped over 7% from its peak on February 19, putting stocks on the doorstep of a correction.
A group of seasoned investors saw last week’s stock market downturn as a buying opportunity. As the market briefly entered correction territory, wiping out approximately $5 trillion from the broader market’s value, corporate insiders began increasing their purchases. According to data from the Washington Service, the insider sentiment index climbed to 0.46 in March, up from 0.31 in January, with almost two weeks still remaining in the month. This puts the metric on track for its highest monthly level since June, bringing it closer to its historical norm.
Dave Mazza, chief executive officer of Roundhill Investments, made the following comment about the situation:
“If we see corporate insiders begin to use the opportunity in their stock prices to purchase shares, that shows that they have confidence in the underlying economy and in their underlying businesses. That differs from just the headlines, because the headlines are scary.”
In its 2025 US Market Outlook, Morningstar indicated that the US stock market was approaching the upper limit of its fair value range, suggesting that investors should moderate their return expectations for the year. It was noted that, since the end of 2010, the market had traded at such a premium or higher less than 10% of the time. Given these conditions, the firm had adopted a more cautious stance, emphasizing the increasing importance of portfolio positioning.
Morningstar advised investors to overweight value stocks and underweight growth stocks, citing that growth stocks were trading at their highest premium relative to fair value since the tech-driven bubble in early 2021, whereas value stocks remained undervalued. As of March 3, 2025, the Morningstar Value Index had gained 5.54% year to date, while the Morningstar Growth Index had declined 3.81%.
In addition, investors are shifting capital into value funds, which are perceived as more resilient during market downturns compared to growth stocks. Data from Lipper shows that U.S. growth exchange-traded funds (ETFs) saw $3.6 billion in outflows this month, while U.S. value ETFs attracted $1.8 billion in inflows. Value funds, which are largely composed of stocks from sectors like banking, energy, and utilities, provide a cushion against market volatility by focusing on stable, cash-rich, and undervalued companies that tend to be less sensitive to economic swings.
Chris Marangi, co-chief investment officer of value funds at Gabelli Funds, noted that value stocks present an appealing opportunity, especially among small and mid-cap companies. He highlighted that these firms tend to gain more from deregulation and tax cuts while being less impacted by challenges like tariffs. Given this, we will take a look at the most undervalued stocks according to hedge funds.
Photo by Annie Spratt on Unsplash
Our Methodology:
For this list, we used a Finviz screener and identified dividend companies with forward P/E ratios below 15, as of March 20. The low price-to-earnings ratio shows that they are traded below their intrinsic value. From the resultant dataset, we selected seven companies that have the highest number of hedge fund investors at the end of Q4 2024. The stocks are ranked in ascending order of hedge funds having stakes in them.
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).
7. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 74
Forward P/E Ratio as of March 20: 9.40
Verizon Communications Inc. (NYSE:VZ) is an American multinational telecommunications company. Earlier this month, the company’s management cautioned that first-quarter performance might fall short of expectations. The company acknowledged that heightened competition and broader economic uncertainties in the US were impacting its results. While Verizon scaled back on promotions at the beginning of the year, rival telecom providers continued their aggressive offers, making its plans appear less competitive in comparison. That said, investors and analysts are hopeful for the company’s future. The stock has surged by nearly 9% since the start of 2025.
Verizon Communications Inc. (NYSE:VZ) delivered solid fourth-quarter results for 2024, reporting $35.7 billion in revenue, a 1.6% increase from the previous year. This growth was primarily driven by an increase in customer acquisitions across both mobile wireless and internet services. In the mobile wireless segment, net postpaid phone subscriber additions rose to 568,000, up from 449,000 in the prior year. Revenue from this segment climbed 3.1% year-over-year to $20 billion, marking its 18th consecutive quarter of growth.
Verizon Communications Inc. (NYSE:VZ) continues to appeal to investors due to its strong cash flow and focus on innovation. In fiscal 2024, the company generated $37 billion in operating cash flow, while free cash flow increased to $19.8 billion from $18.7 billion in the previous year. The company’s quarterly dividend comes in at $0.6775 per share for a dividend yield of 6.19%, as of March 20. In addition to its attractive dividend yield, the company also maintains an 18-year streak of dividend growth.
6. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 79
Forward P/E Ratio as of March 20: 13.6
QUALCOMM Incorporated (NASDAQ:QCOM) is an American semiconductor company that specializes in wireless telecommunications technology. In fiscal Q1 2025, the company reported $11.7 billion in revenue, reflecting a 17.6% increase from the previous year. This marked its third consecutive quarter of double-digit growth, setting a new record for quarterly sales. The company’s chip division (QCT) generated $10.1 billion in revenue, a 20% increase year-over-year. Smartphone-related sales rose 13% to $7.6 billion, while automotive revenue surged 61% to $961 million. Meanwhile, the Internet of Things (IoT) segment grew 36% to $1.5 billion.
With strong research and development capabilities, QUALCOMM Incorporated (NASDAQ:QCOM) is well-positioned to expand into high-growth areas like robotics chips. As automation reshapes industries such as manufacturing, logistics, and services, the need for advanced robotics technology is expected to rise, creating new market opportunities. Qualcomm’s cutting-edge semiconductor designs, including custom “Oryon” cores in the Snapdragon X Elite and Snapdragon 8 Elite, offer high performance and energy efficiency—essential for real-time decision-making in robotics applications. With a forward P/E ratio of 13.6, QCOM is one of the most undervalued stocks to consider.
Financially, QUALCOMM Incorporated (NASDAQ:QCOM) maintained a solid position in the latest quarter, holding more than $3.1 billion in cash and cash equivalents. Operating cash flow reached nearly $4.6 billion, and the company returned $942 million to shareholders through dividend payments. On March 18, the company declared a 4.7% hike in its quarterly dividend to $0.89 per share. This marked the company’s 21st consecutive year of dividend growth. The stock supports a dividend yield of 2.15%, as of March 20.
