When you peel back the curtain on the S&P 500’s recent record-setting gains, you’ll find they’ve primarily been fueled by just seven mega-cap technology stocks dubbed “The Magnificent Seven.” Exclude those stocks, and the broader market suddenly doesn’t look quite so magnificent anymore. This shows that not all stocks are created equal on Wall Street. The fast-growing tech leaders capture the headlines and steep valuations, overshadowing many undervalued stocks to buy.
As investors, we tend to have short memories, quickly forgetting the outperformers of yesterday in favor of the hot new trends today. This presents an opportunity for us. While the herd chases the stocks of the moment ever higher, we can focus on the unloved gems Wall Street has left behind that still have tremendous upside ahead. Let’s take a look at three undervalued stocks to buy.
Farmer Bros (FARM)
NUZE Stock. A photo of a cup of coffee and some coffee beans and a towel on a wooden table. Coffee stocks
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Farmer Bros (NASDAQ:FARM) is a coffee food service company that manufactures and distributes coffee, tea and other products to restaurants and other establishments nationwide. As noted, its financials have struggled in recent years amidst the pandemic’s impact. Revenue declined from $596 million in 2019 to just $340 million in fiscal 2023, while losses mounted to $79 million. Naturally, the stock price retreated significantly, now trading 90% off its 2017 peak.
However, there are signs the bleeding has stopped. Revenue growth is expected to turn positive in fiscal 2024, with losses being substantially cut down. In its recent fiscal Q2 2024 earnings report, Farmer Bros posted a strong quarter with higher gross margins and positive adjusted EBITDA. Quarterly sales grew year-over-year to $89.5 million, driven by price increases, which offset lower coffee volumes.
The stock itself is up 12.5% year-to-date, yet still trades at just a fifth of forward sales. Thus, I believe there is tremendous upside potential if Farmer Bros can deliver consistent growth and move toward profitability in the coming years. The foundations of the business remain, and a turnaround could spur tremendous share price gains. With growth reaccelerating, 2026 could be when profits return.
James River Group (JRVR)
a person holds up a scrap of paper that asks "Are you covered?"
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James River Group (NASDAQ:JRVR) is an insurance holding company operating specialty insurance and reinsurance businesses. It has faced pandemic-related struggles, with the stock price collapsing 81% from its 2020 peak amidst contracting revenue. However, the tide now appears to be turning.
As mentioned, James River has bounced back to profitability in recent quarters as revenue growth recovers post-pandemic. Revenue increased 15% year-over-year to $231 million in Q3 2023, while net income approached $20 million. The stock price has also found its footing, up nearly 24% from lows. Shares now trade at a reasonable five times forward earnings.
With the pandemic’s ripple effects fading and the insurance industry normalizing, I expect sustained growth and margin expansion in 2024 and beyond. James River also carries a healthy dividend yield of 1.93%. Between the growth reacceleration and income stream, this is an undervalued stock primed for a rebound. Trading at just 0.45 times sales and with a strong cash position against debt, the risk/reward appears skewed to the upside.
iPower (IPW)
ecommerce company nogin, NOGN stock
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iPower (NASDAQ:IPW) is an online retailer and supplier of consumer home and garden products, operating under the iPower and Simple Deluxe brands. Despite its significant decline since 2021, the stock is now rebounding quickly, poised for accelerated growth in financials.
iPower recently reported fiscal Q2 2024, posting lower revenue but expanded margins and a reduced net loss compared to last year. The stock itself has surged 25% in one day on this improving profitability profile despite missing estimates. While revenue declined due to tough year-over-year comparisons, the broader sector’s cooldown following Covid-19 appears to be moderating.
Despite the recent pop, iPower remains one of the deeply undervalued stocks to buy, in my view, trading at just a fifth of forward sales. The growth foundations of the business remain firmly intact. As consumption patterns normalize and growth reaccelerates post-pandemic, this stock could realistically deliver multibagger returns by 2026. The risk/reward is overwhelmingly compelling at current levels for investors willing to weather near-term volatility.
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On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
