3 Undervalued Stocks Worth Considering Right Now

The stock market is filled with both high-priced and low-priced stocks. However, the challenge lies in identifying which of these stocks are actually good investment opportunities at their current valuations. In this context, "cheap" and "expensive" do not simply refer to the share price but to the overall value of the companies themselves. This distinction is crucial, as some stocks deemed "cheap" can have share prices in the hundreds of dollars.

Currently, three stocks that appear undervalued yet represent great investment potential are Taiwan Semiconductor Manufacturing (TSM), Alphabet (GOOG), and Adobe (ADBE). These companies have faced some stock price declines recently, making it an excellent time for investors to consider adding them to their portfolios.

Valuations Compared to the S&P 500

To understand their value, we can look at the companies' forward price-to-earnings (P/E) ratios. This metric is preferred as it reflects future growth expectations rather than past performance. The forward earnings multiples, based on analyst projections, offer insight into where a company is likely headed, despite some inherent errors in these estimates.

Currently, the S&P 500 index trades at about 21 times forward earnings, while none of the three highlighted companies has a forward P/E ratio exceeding 20. This implies that these stocks are valued lower than the overall market, even though they possess strong growth potential.

Although these companies are not significantly cheaper than the broader market, the current price discrepancy indicates that investors expect slower growth from these stocks. However, this assumption is fundamentally flawed, as all three companies have strong prospects for market-beating growth.

Reasons for Their Discounted Valuations

Taiwan Semiconductor Manufacturing Company (TSMC) arguably has the strongest case for a premium valuation. Management has forecasted impressive growth rates over the next five years, with an anticipated revenue growth of nearly 20% annually. TSMC is the world’s largest semiconductor manufacturer, producing chips for various companies that lack their own fabrication abilities. This unique position within the industry enables TSMC to have better insights into market trends, making its growth projections more credible.

While TSMC's growth rate is notably higher than market averages, it hasn't yet been fully reflected in its stock price, presenting an opportunity for investors.

On the other hand, Alphabet, while not growing at the same explosive rate as TSMC, still enjoys a robust advertising business that generates consistent double-digit growth. Analysts predict that Alphabet will see 11% growth in the years 2025 and 2026. Furthermore, strategic efficiency initiatives and share buybacks are expected to accelerate its earnings per share (EPS) growth to 12% and 14% in those years, respectively, outpacing typical market growth.

Lastly, Adobe is often viewed skeptically by investors, largely due to fears of being disrupted by AI technologies. However, the company's first-quarter results for fiscal year 2025 showed a 10% year-over-year revenue increase, and its Firefly AI initiative substantially strengthens its market position. Even though its growth rate seems moderate, Adobe’s aggressive buyback program is set to enhance earnings per share significantly. The company has already repurchased 7 million shares, which represents 6% of its outstanding shares this year, alongside that same 10% revenue growth. This combination could easily lead to double-digit earnings growth in the future, making Adobe another attractive investment option.

These companies may not be the fastest-growing stocks in the market, yet they each present solid reasons for believing they will outperform the market in the coming years. Now might be an ideal time for investors to seize the opportunity to acquire these undervalued stocks.

Note: The author has vested interests in the mentioned companies.

stocks, investing, valuation