We recently published a list of 10 Most Undervalued High Quality Stocks to Buy According to Analysts. In this article, we are going to take a look at where Applied Materials, Inc. (NASDAQ:AMAT) stands against other 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.
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).
A technician in a clean room assembling a semiconductor chip using a microscope.
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)
Overall, AMAT ranks 3rd on our list of most undervalued high quality stocks to buy according to analysts. While we acknowledge the potential of AMAT as an investment, 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 AMAT 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 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.