As hot as the S&P 500 has been, the Nasdaq 100 is performing even better. The tech-heavy index is up 19% year-to-date (YTD) and 83% higher since the beginning of 2023. It routinely hits new record highs.
In such a frothy market it is not easy to find undervalued Nasdaq stocks. But they exist. Even when things get overheated, conditions aren’t always evenly distributed opening up opportunities for investors to profit.
With analysts expecting the job market to slow, unemployment to stay steady and wage gains to ease, the chance for Federal Reserve interest rate cuts grows. That could send the stock market soaring further and help boost undervalued Nasdaq stocks that have been waiting for their moment.
The three stocks below are companies investors may want to buy in anticipation of that next leg up.
Qualcomm (QCOM)
Mobile handset chipmaker Qualcomm (NASDAQ:QCOM) hasn’t exactly been a laggard. Shares are up 39% in 2024 and are 68% higher over the past 12 months. Despite those gains, QCOM stock is still an undervalued Nasdaq stock with potential.
Having immersed itself in artificial intelligence (AI), Qualcomm is now a significant player in the space. Its Snapdragon 8S Gen 3 chip supports on-device generative AI and can run large language models (LLM) of up to 10 billion parameters. That includes LLMs from the likes of Meta Platforms (NASDAQ:META) Llama 2 and Alphabet’s (NASDAQ:GOOG, GOOGL) Gemini Nano from Google.
The chip is firmly embedded in Samsung phones and the next iteration of the chipset may be exclusive to Samsung’s Galaxy S25 smartphone. Analysts also anticipate a significant price boost, which will flow through Qualcomm’s income statement.
At 18 times next year’s earnings and the free cash flow (FCF) Qualcomm produces, it remains comparatively cheap. It might not be the bargain it was a year ago, but Qualcomm stock could be a welcome addition to your portfolio.
Charter Communications (CHTR)
Cable and telecom provider Charter Communications (NASDAQ:CHTR) is the second undervalued Nasdaq stock to consider. Unlike Qualcomm, its stock is down 22% YTD and 18% over the past year. It is pressured by the winding down of the Affordable Connectivity Program (ACP) that ended on June 1.
The federal program made broadband more affordable for households by providing a $30 subsidy to lower costs. Charter Communications was the primary beneficiary of the program as some 5 million customers, or 16% of CHTR’s total, received a subsidy. As a result of the program’s end, the company is guiding towards weak customer growth numbers for the rest of the year though its EBITDA will expand this year.
While revenue grew incrementally in the first quarter to $13.7 billion despite a 38% increase in residential mobile service revenue, CHTR showed surprisingly robust profits of $1.1 billion, up from $1 billion last year. It indicates the cable and telecom stock has been able to meet consumer demand for faster broadband speed by upgrading its network at little additional cost.
As conditions improve and Charter Communications gets beyond the end of the ACP, it’s business will look appreciably better. The stock trades at 9 times trailing earnings and estimates and 15 times FCF. Also going for just a fraction of its sales, Charter Communications is a stock to consider.
PayPal Holdings (PYPL)
Payments specialist PayPal Holdings (NASDAQ:PYPL) is arguably the most undervalued Nasdaq stock of the three.
It also holds the most potential. Shares are weighed down by robust competition, particularly Apple’s (NASDAQ:AAPL) recent moves to muscle its way towards a larger share of the payments pie. But the market has thrown the baby out with the bathwater.
PayPal Holdings remains a potent competitor even if there has been share losses. It commands a 45% share of online payment processing technologies worldwide, or more than the next 12 largest rivals combined. Payment volume is also accelerating, up 14% in the first quarter to $404 billion. But there is more growth to come.
PayPal Holdings is launching an advertising platform that is unique to its business. Relying upon the data from the buying habits of it 400 million active accounts, PYPL can offer advertisers the ability to zero in on a targeted audience.
And, the stock is cheap. It trades at 15 times earnings, 12 times estimates and goes for just a fraction of its estimated earnings growth rate. Wall Street sees PayPal Holdings growing profits at a 16% compounded annual rate for the next five years. Add in a price-to-FCF ratio of 12 and you have an undervalued Nasdaq stock ripe for the picking.
On the date of publication, Rich Duprey 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
