In this article, we will look at the 10 Undervalued Cyclical Stocks to Invest In.
On January 9, Alan McKnight from Regions Wealth Management and Richard Bernstein from Richard Bernstein Advisors appeared on a CNBC television interview to discuss the markets and the state of the economy. Alan noted that the consumer remains in good shape. He added that if the earnings continue to perform as they have for the past few quarters, the market and economy appear to be very healthy. On the other hand, Richard noted that 2026 is set to be a different year compared to the previous years. Richard noted that he is advising investors to consider boring investments in 2026, such as dividend-paying stocks, quality stocks, and international diversification. He added that the markets are broadening out and investors should look at fundamentally strong stocks, even if they are based outside of the United States. He further elaborated that the international markets have significantly outperformed the US market in 2025, which suggests that it is a profitable area to look at.
Alan talked about the broadening of the market as well. He noted that 9 out of 10 sectors are hitting new highs, and the “Mag 7,” although underperforming, is finally meeting its meaningful targets. Alan noted that he is more biased on domestic large and mid-cap stocks, while being underweight on international equities.
With that, let’s take a look at the 10 Undervalued Cyclical Stocks to Invest In, to analyze some of the cheap names in the consumer cyclical sector.
Our Methodology
To curate the list of 10 Undervalued Cyclical Stocks to Invest In, we used the Finviz stock screener, Seeking Alpha, and Insider Monkey’s Q3 2025 database. Using the screener, we aggregated a list of consumer cyclical stocks trading under the FWD P/E ratio of 15. Next, we cross-checked the FWD P/E from Seeking Alpha and the number of Hedge Fund Holders from Insider Monkey. Lastly, we ranked the stocks in ascending order of the number of hedge fund holders.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
10 Undervalued Cyclical Stocks to Invest In
10. Trip.com Group Limited (NASDAQ:TCOM)
Forward P/E Ratio: 11.77
Number of Hedge Fund Holders: 37
Trip.com Group Limited (NASDAQ:TCOM) is one of the Undervalued Cyclical Stocks to Invest In. Trip.com Group Limited (NASDAQ:TCOM) has gained more than 22% over the past 6 months, and Wall Street sees more than 16% upside from the current levels.
Recently, on December 9, Trip.com Group Limited (NASDAQ:TCOM) announced its strategic partnership with Galaxy Asia Car Rental, which is Malaysia’s top car rental firm. Management noted that the deal integrates the company’s branding in Galaxy’s high traffic areas, including the Kuala Lumpur flagship store and at KLIA Terminals 1 and 2. The company believes that this move will help boost visibility and will also combine its international user base with Galaxy’s local user base.
This partnership is also important because the company’s data suggests that the Malaysian car rental market is booming and has achieved triple-digit growth year-over-year. This growth is driven by users from Malaysia, China, and Singapore. Management of Trip.com Group Limited (NASDAQ:TCOM) noted that the partnership aligns with the company’s end-to-end travel ecosystem linking global planning with local execution, thereby capitalizing on rising regional demand.
Trip.com Group Limited (NASDAQ:TCOM) provides end-to-end solutions for the corporate travel, lodging, tour, and transportation sectors.
9. PulteGroup, Inc. (NYSE:PHM)
Forward P/E Ratio: 10.84
Number of Hedge Fund Holders: 42
PulteGroup, Inc. (NYSE:PHM) is one of the Undervalued Cyclical Stocks to Invest In. Wall Street has a positive opinion on PulteGroup, Inc. (NYSE:PHM). Recently, on January 9, Michael Dahl from RBC Capital reiterated a Hold rating on the stock and lowered the price target slightly from $112 to $111. Earlier on January 7, Citizens reiterated a Buy rating on the stock with a $145 price target.
RBC Capital noted that they remain cautious on the housing sector during early 2026, mainly due to the challenging housing affordability. The firm expects the R&R to reach an inflection point later during the year. Moreover, the firm also highlighted the challenges in the nonresidential market, noting policy changes, tariffs, and rates as key challenges for the sector. The firm added that while the housing sector is expected to remain volatile, building products OEMs offer considerably better valuations.
On the other hand, Citizens noted that they like the company’s revenue mix, which mainly focuses on move-up and adult buyers. The firm believes that this allows the company to move past the mortgage rate volatility and affordability challenges for new buyers in 2026.
Moreover, the firm also highlighted that PulteGroup, Inc. (NYSE:PHM) generates around two-thirds of its average annual sales from move-up and active adult buyers, thereby providing the company with a significant edge over its competitors.
PulteGroup, Inc. (NYSE:PHM) is engaged in the homebuilding business in the US.
8. Crown Holdings, Inc. (NYSE:CCK)
Forward P/E Ratio: 13.35
Number of Hedge Fund Holders: 43
Crown Holdings, Inc. (NYSE:CCK) is one of the Undervalued Cyclical Stocks to Invest In. On January 8, Stefan Diaz from Morgan Stanley reiterated a Buy rating on the stock with a $129 price target. Earlier on January 6, Michael Roxland from Truist Financial also reiterated a Buy rating on the stock and raised the price target from $126 to $130.
Analysts from Truist noted that the packaging volumes are expected to stay challenged in early 2026, mainly due to limited promotions. However, the firm sees CPGs successfully driving volumes while ensuring price gains. Moreover, the firm also sees growth for beverage cans in North America and Europe, along with an increase in prices for containerboard producers.
That said, on January 5, Wells Fargo reiterated a Hold rating on Crown Holdings, Inc. (NYSE:CCK) and increased the price target from $99 to $106. The firm noted 2025 to be more challenging than initially expected. Wells Fargo added that the K-shaped economy remains one of the top concerns, which results in a hold rating. However, the firm is optimistic about some catalysts that will help in a rebound for the sector.
Crown Holdings, Inc. (NYSE:CCK) is a global packaging powerhouse operating through the Americas Beverage, European Beverage, Asia Pacific, and Transit Packaging segments.
7. Ford Motor Company (NYSE:F)
Forward P/E Ratio: 13.48
Number of Hedge Fund Holders: 44
Ford Motor Company (NYSE:F) is one of the Undervalued Cyclical Stocks to Invest In. On January 7, CNBC reported that Ford Motor Company (NYSE:F) has plans to introduce its autonomous driving technology in its $30,000 all electric vehicles by 2028.
This development will put the company in the race with some leading AV technology companies, including Tesla, GM, and Rivian Automotive. The report highlighted that although the company’s plan is similar to its competitors’, what sets it apart is that the company plans to offer this technology in its mainstream models rather than some pricier new models. The first vehicle to incorporate Ford Motor Company’s (NYSE:F) new Universal EV platform technology is expected to be a midsize truck priced at around $30,000 by 2027.
That said, Wall Street is also bullish on the stock. On January 8, Alexander Potter from Piper Sandler upgraded the stock from Neutral to Overweight and also raised the price target from $11 to $16. On the same day, Joseph Spak from UBS reiterated a Neutral rating on the stock with a $12.5 price target.
Piper Sandler noted the company’s latest AV and electric vehicle announcements as “welcome developments.” The firm sees these developments aligning with the modern manufacturing philosophy in the automotive segment. Piper Sandler anticipates these developments to boost the company’s performance in 2027 and 2028.
Ford Motor Company (NYSE:F) develops, delivers, and services Ford trucks, sport utility vehicles, commercial vans, and cars, and Lincoln luxury vehicles worldwide.
6. Lithia Motors, Inc. (NYSE:LAD)
Forward P/E Ratio: 9.35
Number of Hedge Fund Holders: 45
Lithia Motors, Inc. (NYSE:LAD) is one of the Undervalued Cyclical Stocks to Invest In. On January 9, Benchmark reiterated a Buy rating on Lithia Motors, Inc. (NYSE:LAD) with a $400 price target. Earlier on December 11, Evercore ISI also reiterated a Buy rating on the stock with a $500 price target.
Benchmark noted that the rating reflects the firm’s updated forecasts for the company’s performance metrics. The new outlook includes the reduction in production volumes and the gross profit per unit. The firm expects a deleveraging to 67% of sales for Lithia Motors, Inc. (NYSE:LAD). Moreover, Benchmark also now expects the company to generate $409 million EBITDA during the fourth quarter, along with an adjusted EPS of $8.21.
On the other hand, Evercore ISI expects the company to deliver an in-line performance during the fiscal fourth quarter. The firm added that the market environment is characterized by challenging new sales and pressure on new vehicle gross profits per unit in Q4.
Lithia Motors, Inc. (NYSE:LAD) is set to release its fiscal Q4 2025 results on February 12, 2026. Wall Street expects the company to post roughly $9.30 billion in revenue, along with a GAAP EPS of $8.41.
Lithia Motors, Inc. (NYSE:LAD) is the largest auto dealer in the United States. It is a new and used vehicle retailer that also provides related services.
5. The Gap, Inc. (NYSE:GAP)
Forward P/E Ratio: 45
Number of Hedge Fund Holders: 49
The Gap, Inc. (NYSE:GAP) is one of the Undervalued Cyclical Stocks to Invest In. On January 8, Jay Sole from UBS upgraded Gap, Inc. (NYSE:GAP) from Hold to Buy and also raised the price target from $26 to $41. Earlier on January 6, Barclays reiterated a Buy rating on the stock and raised the price target from $30 to $33.
Analysts at UBS noted that the company is approaching an inflection point in sales and earnings. The firm believes that this has not been completely priced into the share price. UBS also noted that the revenue and profit of the company are expected to increase during the year, driven by new initiatives that have started to contribute and the stabilizing performance of the company in Athleta.
UBS expects The Gap, Inc. (NYSE:GAP) to post 4.4% revenue growth in 2026, along with a 14% earnings growth. This marks an improvement from the previous year’s performance, where the company posted 1.9% revenue growth and a year-over-year decline in earnings.
The Gap, Inc. (NYSE:GAP) is an American specialty apparel company offering clothing, accessories, and personal care products for women, men, and children through brands like Old Navy, Gap, Banana Republic, and Athleta.
4. Toll Brothers, Inc. (NYSE:TOL)
Forward P/E Ratio: 10.54
Number of Hedge Fund Holders: 51
Toll Brothers, Inc. (NYSE:TOL) is one of the Undervalued Cyclical Stocks to Invest In. On January 8, Tyler Batory from Oppenheimer reiterated a Buy rating on the stock with a $155 price target. A day earlier, on January 7, Citizen JPM initiated a Buy rating on the stock with a $175 price target.
Citizen JPM noted that Toll Brothers, Inc. (NYSE:TOL) has been focusing on active adult and move-up customers. This has created a demand base for the company, which is less sensitive to interest rates in comparison to payment-driven buyers. The firm also highlighted that during the fiscal fourth quarter of 2025, 70% of the company’s closings came from active adult and move-up customers, providing the company with a resilient demand base.
Moreover, according to the firm, the company is expected to expand its community count by roughly 9% in fiscal 2025 and projects around 8% to 10% growth in fiscal 2026.
That said, earlier on December 17, Raymond James also reiterated a Buy rating on Toll Brothers, Inc. (NYSE:TOL) with a $160 price target. The firm highlighted that the company is stabilizing its net order growth and adjusted gross margins. Raymond James acknowledged a conservative outlook for 2026, mainly due to cost inflation and elevated incentives. However, the firm sees growth for the company in 2027.
Toll Brothers, Inc. (NYSE:TOL) builds, markets, and finances residential and commercial properties across the United States.
3. JD.com, Inc. (NASDAQ:JD)
Forward P/E Ratio: 11.14
Number of Hedge Fund Holders: 55
JD.com, Inc. (NASDAQ:JD) is one of the Undervalued Cyclical Stocks to Invest In. On January 7, Fawne Jiang from Benchmark Co. reiterated a Buy rating on the stock with a $38 price target. Earlier on January 2, Alicia Yap from Citi also reiterated a Buy rating on the stock but lowered the price target from $44 to $37.
Analysts at Benchmark noted that the reiterated bullish sentiment comes despite the firm lowering fiscal fourth quarter 2025 estimates. The firm lowered the estimates due to significant growth challenges faced by JD.com, Inc. (NASDAQ:JD). Benchmark noted that the company is phasing out the trade-in program benefits, which is expected to create a tougher year-over-year environment. Moreover, consumer spending is also weighing in on the company’s growth prospects.
The firm further added that this environment, topped with the company’s ongoing food delivery investments, is expected to trigger profitability setbacks. That said, Benchmark maintained its fiscal 2026 estimates for JD.com, Inc. (NASDAQ:JD). However, the firm expects the current challenges to persist during the first half of 2026, thereby indicating a slow start to the year.
JD.com, Inc. (NASDAQ:JD) is one of China’s largest e-commerce and technology companies. It operates an extensive online retail platform supported by advanced logistics, supply chain management, and cloud services.
2. D.R. Horton, Inc. (NYSE:DHI)
Forward P/E Ratio: 12.87
Number of Hedge Fund Holders: 61
D.R. Horton, Inc. (NYSE:DHI) is one of the Undervalued Cyclical Stocks to Invest In. Wall Street is cautious on D.R. Horton, Inc. (NYSE:DHI). Recently, on January 9, Michael Dahl from RBC Capital reiterated a Sell rating on the stock and lowered the price target from $118 to $117. Earlier on January 7, Citizens downgraded the stock from Market Outperform to Market Perform, without disclosing any price targets.
Analysts at RBC Capital noted that they kept an Underperform rating on the stock because of the cautious outlook for the housing sector in early 2026. The firm noted that the housing affordability challenges and R&R are expected to potentially reach an inflection point later in 2026, but the first half remains challenging. RBC added that the non-residential markets are also giving mixed signals due to increased risks from policy changes, rates, and tariffs. Therefore, the overall volatility of the sector remains high.
Similarly, Citizens also noted its skepticism regarding the 2026 earnings projections for the sector. The firm believes that the consensus estimates for D.R. Horton, Inc. (NYSE:DHI) are overly aggressive. Citizens expect a potential inventory clearance for D.R. Horton to materialize during the spring of 2026. However, the firm downgraded the stock due to the near-term challenges.
D.R. Horton, Inc. (NYSE:DHI) is a Texas-based homebuilding company that develops land, constructs, and sells single-family and multi-family homes.
1. PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E Ratio: 11.25
Number of Hedge Fund Holders: 73
PDD Holdings Inc. (NASDAQ:PDD) is one of the Undervalued Cyclical Stocks to Invest In. Wall Street has a mixed opinion on PDD Holdings Inc. (NASDAQ:PDD). Recently, on January 9, Shawn Yang from Arete Research downgraded the stock from Buy to Hold with a $130 price target. However, earlier on January 6, Freedom Capital Markets reiterated a Buy rating on the stock and raised the price target from $140 to $170.
Freedom Capital noted that the company delivered mixed results during fiscal Q3 2025 released on November 18. The firm elaborated that the company showed resilience by adapting to the tariffs from the United States. Moreover, the company also removed the de minimis duty-free threshold for shipments from China. Despite these challenges, the company was still able to generate $58.8 billion in revenue, reflecting a 12.5% revenue growth year-over-year.
The firm added that despite the positive outlook, they expect the company’s margins to remain pressured as it prioritizes long-term investments. Lastly, Freedom Capital noted that the upcoming performance of PDD Holdings Inc. (NASDAQ:PDD) is closely linked to the US-China relationship. On the bright side, the company has also been gradually expanding into other international markets.
PDD Holdings Inc. (NASDAQ:PDD) is a leading e-commerce group with a range of businesses. Pinduoduo and Temu are two of the main platforms of the company, among others. It has built a network of logistics, sourcing, and fulfillment capabilities to connect businesses with people.
While we acknowledge the potential of PDD to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than PDD and that has 100x upside potential, check out our report about this cheapest AI stock.
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