Key Takeaways:
- Alibaba trades just under 15 times earnings, yet analysts expect nearly 10% annual earnings growth. Billionaire investors are also betting big on the company.
- British American Tobacco offers a strong 8% dividend yield, steady earnings growth, and looks slightly undervalued today.
- Nu Holdings is growing earnings at over 30% annually, yet still trades at a cheap valuation.
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While the market tends to favor flashy growth stocks, the best opportunities are often in high-quality businesses trading at cheap valuations.
Here are three undervalued stocks for 2025 that could see big gains over the next one to three years. The first two look interesting, but Stock #3 looks like the best opportunity on this list.
1: Alibaba (BABA)
Alibaba is one of the world’s largest e-commerce companies, often called the “Amazon of China.”
But unlike Amazon, Alibaba also dominates in cloud computing, digital payments, and logistics, making it a more diversified business.
Billionaire investors Michael Burry and David Tepper have made big bets on Alibaba, believing that Chinese stocks are severely undervalued.
Unfortunately, Alibaba is up about 70% in the past 3 months. That means the stock isn’t as undervalued as it used to be.
Right now, analysts have an average price target of ~$150 per share, which is just a touch higher than the current stock price.
So why could Alibaba still be undervalued?
- Analysts expect nearly 10% annual earnings growth, yet the stock trades at just under 15 times earnings.
The combination of Alibaba trading at a higher P/E ratio plus earnings growth could move the stock higher in the next few years.
Alibaba is a good stock, but it doesn’t look quite as interesting as Stock #3.
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2: British American Tobacco (BATS)
British American Tobacco is one of the largest tobacco companies in the world, generating massive free cash flows and paying a high dividend yield.
While the company’s legacy tobacco business provides steady income, its reduced-risk products like vaping and heated tobacco offer growth potential for the future.
Tobacco stocks are known for their strong dividend payouts, and BAT currently offers an 8% forward dividend yield, which is very high.
Analysts see only about 15% upside for the stock today, because the stock is up nearly 30% in the past year. The stock has already realized a lot of its upside already.
However, the stock still offers an 8% dividend yield, along with single-digit annual expected earnings and dividend growth.
Investors looking for a mix of value and high dividend income may find BAT to be a solid long-term play.
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3: Nu Holdings (NU)
Nu Holdings, or Nubank, is one of the fastest-growing fintech companies in the world, making banking more accessible across Latin America.
The company thrives in underserved markets like Brazil, where millions of people previously had no access to traditional banking services.
Warren Buffett’s Berkshire Hathaway still owns over $400 million of Nu Holdings, even though Berkshire reduced its stake by over 50% last quarter.
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Right now, analysts have a price target of nearly $15/share, which implies about a 30% upside since the stock is trading at just over $11/share.
What makes Nubank really interesting is that earnings are expected to grow over 30% annually, yet the stock trades at just 19 times earnings.
Generally, you’d expect a business seeing 30% annual earnings growth to trade at 30 times earnings or higher.
Additionally, stock prices tend to follow earnings over the long term, so it’s possible that the stock price could grow right alongside earnings:
With strong expected growth and an attractive valuation, Nu Holdings looks like an interesting undervalued stock today.
TIKR Takeaway
Finding undervalued stocks with strong growth potential is one of the best ways to generate long-term returns.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks and was built for investors who think of buying stocks as buying a piece of a business.
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. We aim to provide informative and engaging analysis to help empower individuals to make their own investment decisions. Neither TIKR nor our authors hold positions in any of the stocks mentioned in this article. Thank you for reading, and happy investing!
