With the markets cooling down and investors rotating out of the “Magnificent 7” to take their profits, it’s time to take a look at some stocks that have been ignored as of late. The companies that have seen their stocks soar this year are great businesses. However, the optimism has likely been priced in by the markets. On the other hand, high-quality stocks that haven’t budged during this bull market likely have some catching up to do. In order to beat the masses, looking at stocks that the market is ignoring and avoiding the hype is what made legendary investors like Warren Buffet successful.
So how am I identifying ignored stocks? These three companies have all underperformed the benchmark S&P 500 index this year. They are also excellent, well-run companies that have been largely ignored thanks to investors’ focus on AI and the semiconductor sector. If you are a value hunter and looking to beat the benchmark, these three should be added to your watchlist immediately.
Block (SQ)
This former fintech darling has lagged the market in recent years and has returned a loss of 5.7% in 2024. Compared to the more than 16% return of the S&P 500 this year it’s easy to see why shareholders are frustrated. Here’s why I think Block (NYSE:SQ) is ready to rebound in 2025 alongside the ongoing crypto bull market.
It’s no secret that this election is starting to revolve around the crypto industry, especially Bitcoin. Trump brought on a pro-Bitcoin Vice Presidential candidate in J.D Vance while Harris has been speaking with Mark Cuban about cryptocurrencies. Block’s Cash App has more than 50 million active users who have direct access to Bitcoin through the app. CEO Jack Dorsey has also said that Block is working on a retail-friendly Bitcoin miner. This falls in line with Trump’s vision of the future of Bitcoin mining in America.
Shares of SQ are trading at just 1.8x sales and 20x forward earnings. For a growth stock that has grown its revenue at a five-year CAGR of 45%, these price multiples seem like a bargain. At this point, it seems that either a Trump or Harris victory in November is pro-Bitcoin and that should benefit Block’s stock price.
Starbucks (SBUX)
Starbucks (NASDAQ:SBUX) is another company that has been left for dead by the markets. Despite being in a clear bull market, Starbucks stock has lost about 15% in 2024 and nearly 23% since July of last year. The company has struggled since the pandemic and has seen stunted growth in key markets like China. In the most recent quarter, Starbucks saw an 11% year-over-year sales decline at its Chinese stores.
When companies as powerful as Starbucks are beaten down, it usually attracts attention. The stock has been mostly ignored in favor of high-growth industries like AI and semiconductors. Last week, The Wall Street Journal reported that activist investor Elliott Investment Management has taken a significant stake in the struggling company. Shares popped by nearly 7.0% following the report.
Elliott has had success with turning companies around and has taken recent stakes in companies like Southwest (NASDAQ:LUV) and Texas Instruments (NASDAQ:TXN). Although Starbucks shares are trading at their lowest multiples in years at 2.4x sales and 19.8x forward earnings, shareholders would like to see more than a five-year revenue CAGR of just 7.0%.
Exxon Mobil (XOM)
Even some of the largest companies in the world can be ignored and forgotten by the market. Exxon Mobil (NYSE:XOM) is the eighteenth-largest company in the world by market cap but fossil fuels and energy have not been the sectors of choice in this bull market. So far in 2024, XOM has underperformed the S&P 500 index by 7.0% and over the past year by nearly 15%.
Why am I suggesting you pay attention to Exxon Mobil now? One underappreciated part of the AI boom is going to be how to supply enough energy to power these massive data centers. While renewables can work, many are turning to abundant fossil fuel sources like natural gas. Oil and petroleum are also overwhelmingly used to power the infrastructure that produces electricity. Finally, Trump has already stated that he intends to “drill, baby, drill” and bring energy dominance back to the U.S. through fossil fuels.
Exxon’s stock is trading at rock-bottom multiples after its underperformance this year. Shares of XOM are trading at 1.3x sales and 12.5x forward earnings while still growing its annual revenue at a CAGR of 22% over the past three years. Exxon also provides you with one of the safest dividends on the market with more than 40 consecutive years of raising its distribution. This makes XOM a Dividend Aristocrat with a current dividend yield of 3.35%.
On the date of publication, Michael Que did not have (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.
On the date of publication, the responsible editor held a LONG position in SBUX.
