Investing

3 Undervalued Stocks Wall Street Predicts Will Rally 50% or More

Omor Ibne Ehsan

Published: January 15, 2025 10:30 am

The S&P 500 gained 23.3% in 2024. This sort of gain is truly extraordinary given the fact that we haven’t had rate cuts as early — and as many — as most investors would have expected. However, it is a pretty well-known fact that most of these gains have been driven by tech stocks, primarily mega-caps.

In contrast, more than half of S&P 500 stocks are now trading below their 200-day moving averages, and the equal-weight S&P 500 is down 4.4% in just the past month. This growing disconnect between the market’s winners and losers reminds me of periods that historically presented excellent buying opportunities.

I believe there’s a good chance that this divergence will reverse and the market will eventually rebalance and stocks with nosebleed valuations start trading at more normalized multiples. The profits taken from the mega-caps will likely end up in quality companies in other sectors that are available at much more reasonable valuations. Here are three undervalued stocks to look into with 50%-plus upside:

24/7 Wall St. Key Points:

• Many stocks may be trading at nosebleed levels, but there are still undervalued stocks you can buy.
• These stocks can deliver over 50% upside, at least according to the analysts here.
• The stocks here have solid upside potential and relatively little downside risk. If you’re interested in stocks with big upside, grab this report: Discover “The Next NVIDIA” 

Celsius Holdings (CELH)

Celsius Holdings (NASDAQ: CELH) is a major player in the energy drink market. The company makes carbonated and non-carbonated functional energy that “burn body fat when combined with exercise.” Regardless of whether or not that claim is true, CELH stock was one highest-flying names in the first half of this year before it nosedived in May.

The stock is currently down around 70% from its peak but the downward trend has started to trend sideways. The first major drop occurred on May 27, 2024, when the stock fell approximately 13% (from $95.15 to $82.92). This decline happened as analysts and investors reacted to Nielsen reporting a major growth slowdown in its weekly retail data. A more significant blow came on September 4, 2024, when CEO John Fieldly said sales to PepsiCo had decreased by “roughly around $100 million to $120 million …from what Pepsi ordered last quarter”

This was mostly due to Pepsico’s (NASDAQ: PEP) over-ordering when its distribution partnership began with Celsius, but demand turned out to be lower than previously thought. Revenue decreased 31% year-over-year to $265.7 million in Q3 2024 but analysts still expect 3.3% growth for the full year. On the other hand, EPS is expected to decline by 10.7% in 2024 before growing by 37.5% next year, along with 16% sales growth.

The expected recovery in Celsius’ financials is what I think could lead to the stock making a comeback next year. The bearish sentiment here is now overblown after the crash. Most of the negativity seems priced in and there’s solid upside potential here; Wall Street analysts see a 58% upside over the next twelve months.

CVS Health (CVS)

CVS Health (NYSE: CVS) is a diversified healthcare company that does business across retail pharmacy and health insurance. This stock has been one of the worst-performing names in the past two years and has declined by almost 60% from its February 2022 highs. CVS’ all-time high was back in July 2015. It is down 18% in just the past month alone.

Even then, I don’t think you’re buying into a falling knife here. Debt is this company’s biggest problem as long-term debt jumped from $22.18 billion in 2017 to $71.44 billion in 2018 to fund its Aetna acquisition. Interest rates cooperated with management for the first three years but interest payments became too much to swallow — after the post-COVID rate hikes — and that’s primarily why CVS has suffered for so long.

Some $2.7 billion went into interest payments of its $14.6 billion in operating earnings. That might not seem big, but CVS is not a business with high margins: net margin hovered around 3-4% in the 2010s. It was at 1.3% and 2.3% for 2022 and 2023, respectively.

Regardless, I think CVS can still deliver solid long-term returns. Rate cuts are already starting to ease the debt servicing payments and will continue to do so going forward. We’re unlikely to see ultra-low interest rates return, but combined with CVS’ own organic growth, margins could recover significantly in the coming years, perhaps back over 3%.

CVS reported revenues of $95.4 billion, up 6.3% year-over-year and the current valuation looks very solid at just 9 times forward earnings. This is on top of a 6% dividend yield you can sit on as it recovers. Wall Street analysts are looking at almost 61% upside over the next year.

ACM Research (ACMR)

ACM Research (NASDAQ: ACMR) specializes in cleaning and processing equipment for wafer production. The stock has declined by about 54.5% from its 52-week high but looks quite attractive at current levels.

Revenue increased by 21% to $204 million in Q3 2024, and net income rose 20% to $30.9 million. The profit margins have also stayed robust at 15%. EPS climbed to $0.49 from $0.43 year-over-year.

Wall Street seems overly focused on geopolitics. Almost all of ACM Research’s revenue comes from China, though I don’t think things are serious enough for the company to face big enough export restrictions to hurt its operations. ACM Research has most of its manufacturing inside China and the coming Trump presidency could end up benefiting ACM because Trump has criticized the CHIPS Act and may repeal it. This would hurt ACM’s Western competitors a lot more since they’re subsidized.

ACMR’s current valuation at less than 8 times forward earnings is pricing in an overly bearish scenario. You’re not going to find any other semiconductor-related stock for this cheap anywhere else. The company also recently raised its 2024 revenue guidance to $725-745 million. It was previously $650-725 million. The consensus price target of $30 implies a 100% upside from current levels.