We recently published a list of 10 Most Undervalued High Quality Stocks to Buy According to Analysts. In this article, we are going to take a look at where Alphabet Inc. (NASDAQ:GOOGL) stands against other most undervalued high quality stocks to buy according to analysts.
Is a Market Rally Around The Corner?
In one of our recent articles, titled 11 Best Undervalued Stocks to Invest in Now, we talked about how the recent tariffs have caused a slowdown in the market and are likely to cause inflation. Here’s a piece from the article:
“Today, Richard Fisher, former Dallas Fed president, appeared on a CNBC interview to talk about the recent tariffs and their impact on the market. Fisher stated that a tariff is a cost factor that goes into producing and distributing a product, making it a form of tax. Business operators of all sizes have to figure out a way to protect their margins against the impact. On the other hand, the Federal Reserve has to gauge the amount of revenue it would generate from these tariffs considering it is slowing down the economy and can cause inflation as the companies will have to raise prices to maintain their margins. Moreover, Richard Fisher noted that such tariffs take a long to be digested, as businesses don’t change something overnight. The only way for companies to maintain their margins without increasing prices is by increasing productivity, which again does not happen overnight and takes time.”
On March 6, Tom Lee, managing partner and head of research at Fundstrat Global Advisors appeared on a CNBC interview to talk about how the market is likely to proceed forward from here. Lee stated that he is still optimistic about the market, he acknowledged that investors are sitting out at the moment as they are trying to assess the severity of these tariffs. However as a result the market is seeing a big price correction and a decline in sentiment. Moreover, Lee noted that we also had a bad ADP jobs report and the market is going up on bad news which he believes is good for the market.
Lee explained what has happened during the six weeks essentially represents a bear market that has swept through sentiment and positioning because if we look at the hedge funds positioning it has almost gone neutral. Lee believes because of this the current and two upcoming months can be huge rally months, where the market can be rallying as much as 10% to 15%.
While answering the question of whether this slowdown is a Buy, Lee noted that the 10 best days happen every year for the market. Last year the 10 best days of the year added up to 21% to the S&P 500, excluding these 10 days the market was only up 4%. He explained that markets don’t get 20% gains throughout the year, it is those 10 best days where the market rallies the most. Lee thinks that these 10 best days for 2025 are near because if the economy is near stall speed, the “Trump Put” will come back, otherwise, the market has to unwind all this austerity. Moreover, if the job market is soft, the “Fed Put” comes back into play, because the Fed does not want the stall speed to linger. Lee thinks these two things are going to be the positive catalysts in the next couple of weeks.
Our Methodology
To compile the list of the 10 most undervalued high-quality stocks to buy according to analysts, we used the iShares MSCI USA Quality Factor ETF. Using the ETF we aggregated a list of high-quality stocks trading below the S&P 500’s forward P/E ratio of 22 as per the Wall Street Journal. Next, we checked the analyst upside potential for each stock from CNN and ranked the stocks in ascending order of the upside potential. We have also added the number of hedge funds holding each stock, sourced from Insider Monkey’s Q4 hedge funds database. Please note that the data was collected on March 6, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A user’s hands typing a search query into a Google Search box, emphasizing the company’s search capabilities.
Alphabet Inc. (NASDAQ:GOOGL)
Forward P/E Ratio: 19.02
Number of Hedge Fund Holders: 234
Analyst Upside Potential: 27.04%
Alphabet Inc. (NASDAQ:GOOGL) is a leading technology company that provides a range of products and services internationally. The company operates through three main segments including Google Services, Google Cloud, and Other Bets. It is known for popular platforms including Google search engine, YouTube, Android, Google Maps, and more.
On March 5, BofA released a statement regarding Alphabet Inc. (NASDAQ:GOOGL). The firm has a Buy rating on the stock, with a price target of $225. BofA noted that Google now processes more than 5 trillion searches annually, a significant increase from the 2 trillion searches reported in 2016. This represents a substantial growth in query volume over the past eight years. Moreover, the query volume has grown at a 12% CAGR from 2016 to 2024. This is notably lower than the 19% CAGR for search revenues during the same period, suggesting that revenue growth has been more influenced by monetization strategies rather than just volume increases. The firm suggested that while strong usage growth has contributed significantly to revenues, improved monetization can add an additional 6 to 7 percentage points of growth annually. Moreover, disclosure of these figures could enhance investor confidence in Google’s ability to leverage new AI technologies effectively over time. Alphabet Inc. (NASDAQ:GOOGL) is one of the most undervalued high-quality stocks to buy according to analysts.
Qualivian Investment Partners, an investment partnership focused on long-only public equities, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
Overall, GOOGL ranks 5th on our list of most undervalued high quality stocks to buy according to analysts. While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.