The current market backdrop has created an unusual opening for stocks that look dirt cheap on paper, yet may be more than just busted names in decline. As of mid‑2025, U.S. equities are flirting with record highs, largely powered by blistering gains in AI‑inflected mega‑caps. Yet beneath those spikes, several names, especially outside Big Tech, are trading at valuations so low they trigger the age-old question: deep value or value trap? That ambiguity isn’t accidental; it’s the slow grind of trade friction, tariff uncertainty, and global deceleration reshaping analysts’ narratives around risk and reward.
President Trump’s aggressive tariff escalation has lifted the effective U.S. tariff rate from around 1.5% to roughly an average of 18% in early 2025, triggering sharp revisions to future margins in sectors like autos and semiconductors. GM, for instance, disclosed an expected $4–5 billion drag from tariffs this year alone, spooking short‑term expectations even as core electricity and EV demand holds firm. Analysts at Evercore have flagged over three dozen “high quality” names—across tech, healthcare, industrials, and consumer staples- that have been unfairly beaten down by fear, yet still maintain “outperform” ratings while trading at eyebrow-raisingly low multiples.
What defines an “extremely cheap” stock right now isn’t just a single-digit P/E ratio, but a kind of asymmetric limbo: solid revenue or AI-linked momentum held back by policy-driven sentiment risk. Some may deserve the discount. Others may be set for a sharp revaluation if the clouds clear. European small- and mid-caps illustrate the point: investors are rotating into domestically focused firms to dodge U.S. trade fallout and euro volatility, and these names, up 9–11% YTD, now trade at a narrower premium to large-caps, suggesting the market’s beginning to distinguish between systemic decline and cyclical mispricing.
Meanwhile, macro indicators remain mixed. The U.S. added nearly 800,000 jobs in six months and consumer sentiment is holding up, but one Fed forecast pegs 2025 GDP growth at just 1.1%, a slowdown not yet fully baked into valuations. Still, the market’s resilience may rest on belief in “TACO” (Trump Always Chickens Out), the idea that tariff threats are negotiating tools, not fixed policy.
All of this creates fertile ground for value-oriented names with modest tariff exposure and improving fundamentals to be priced far below their true worth. The most intriguing picks aren’t micro-cap speculators or faded glory plays, but mid-cap industrial, software, or energy companies that, while technically “growth” or “hybrid” stocks, now trade like distressed assets. Take General Motors: despite its tariff headwinds, it sits among the top undervalued names on some analyst screens, trading around 7.7x P/E versus an S&P average closer to 20x.
To summarize: trade turbulence, policy fog, and macro slowdown have introduced short‑term risk premiums into wide swaths of the market. But within that fog lie companies with intact narratives like AI adoption, infrastructure tailwinds, secular demand curves, just waiting to be rediscovered… or revealed as traps.
Our Methodology
For our list of stocks that look extremely cheap on paper, we used stock screeners to pick stocks with a median upside of at-least 25% while also accounting for their forward P/E and forward EPS growth rate. We chose median over average to make sure we don’t get results that are potentially skewed due to extreme values on either end. We have also mentioned the number of hedge funds holding stake in these stocks as of Q1, 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).
8. Arch Capital Group Ltd. (NASDAQ:ACGL)
Median Upside as of July 26: 25%
Forward P/E Ratio: 11.16
Forward EPS Growth (1Y): 2.74%
Number of Hedge Fund Holders: 46
Arch Capital Group Ltd. (NASDAQ:ACGL) is one of the stocks that look extremely cheap on paper. On July 10, Wells Fargo reaffirmed its Overweight rating on ACGL and raised its price target to $110 (up from $108), signaling nearly 22% upside from the current share price. This move underscores its optimistic view on Arch’s prospects, especially compared to other sector names that haven’t seen similar upward revisions lately.
This bullish tone comes amid a busy July for ACGL: on July 9, Keefe, Bruyette & Woods downgraded the stock to Market Perform with a lower $101 target. So Wells Fargo’s reiteration and raise carries some weight, not just a hollow update, but a confident nod amid mixed analyst sentiment.
Recent price action reflects investor attention: the stock dropped roughly 2.5% on July 9, breaking a short winning streak, then bounced 3.1% on July 14, outperforming peers like Everest, AXIS, and W.R. Berkley, with a surge in trading volume signaling heightened interest.
Arch Capital Group Ltd. is a Bermuda-based insurer and reinsurer that underwrites specialty risks globally, including property, casualty, reinsurance, and mortgage insurance. Operating across some 60 offices worldwide, Arch generated revenue in the tens of billions and employs over 7,200 people.
7. First Solar, Inc. (NASDAQ:FSLR)
Median Upside as of July 26: 27%
Forward P/E Ratio: 12.03
Forward EPS Growth (1Y): 43.50%
Number of Hedge Fund Holders: 52
First Solar, Inc. (NASDAQ:FSLR) is one of the stocks that look extremely cheap on paper. On July 14, 2025, Mizuho Securities reiterated its Outperform rating on First Solar and nudged up its price target from $275 to $278, spotlighting the company as a standout beneficiary of U.S. clean‑energy policy despite broader headwinds. Mizuho emphasized that while many utility‑scale solar names may struggle under the newly scaled‑back tax credits, First Solar’s U.S.-based manufacturing and eligibility for the Inflation Reduction Act’s 45X tax credits position it squarely on the winning side of the policy shift. The firm argues that developers who want to avoid trade scrutiny will lean on domestically produced panels, exactly First Solar’s wheelhouse.
At the same time, broader solar sector turbulence erupted on July 8, when President Trump issued an executive order targeting renewable energy tax credits, sending clean‑energy stocks, including First Solar, down 3%–5% across the board. Still, analysts from RBC and others remain optimistic that long‑term demand from AI data center growth and domestic manufacturing will underpin resiliency in the sector.
First Solar operates out of Tempe, Arizona as the only major U.S.-headquartered manufacturer of cadmium‑telluride thin‑film photovoltaic panels. Founded in 1999, it runs several domestic production facilities, including in Ohio and Alabama, and is scaling up a 3.5 GW plant in Louisiana for 2026. Its integrated capabilities span module manufacturing, utility system deployment, financing, and recycling services, making it a vertically integrated player with strong policy tailwinds and growth potential.
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