How to Find Undervalued Stocks

In 2025, growth stocks like Nvidia climb 29% year-to-date (YTD), but value investors hunt mispriced gems—buying a dollar for fifty cents. FinanceCharts Markets aren’t perfectly efficient short-term, so bargains exist if you’re disciplined. This isn’t about chasing hot trades; it’s about buying quality businesses at a discount, like Warren Buffett’s Apple bet at a 10 price-to-earnings (P/E) ratio in 2016, now up 500% through Q2 2025. NasdaqShares Magazine Sears looked cheap in 2015, bankrupt by 2018. Reuters With Fed rates at 4.25-4.5% (85% chance of a September cut) fueling growth’s 12% YTD run and tariffs (25% on Canada/Mexico) hitting energy and industrials, undervalued stocks hide in plain sight. ReutersBlackRock Here’s how to find them without falling for traps.

👉 New to value investing? Grab our subscriber-only Value Playbook for the full framework. This guide delivers practical steps to spot deals.

What “Undervalued” Means

A stock’s undervalued when its market price is below its intrinsic value—what the business is worth based on earnings, assets, and cash flows. Markets swing on headlines, but fundamentals don’t lie. In 2025, U.S. value stocks are up 3% YTD, trailing growth’s 12%, while international value gains 10%. RBC Wealth ManagementBlackRockBlackRock Financials (JPMorgan, up 7%) and domestics (Walmart, up 8%) look cheap; tariff-hit energy (Chevron, down 2%) offers potential. FinanceCharts+2FinanceCharts+2

Key Metrics to Spot Bargains

Metrics point to deals. Here’s what matters, with a guide:

Metric | Good | Red Flag
P/E (Price per $1 of earnings) | <15 | >20
P/B (Price vs. book value) | <1.5 | >3
Dividend Yield (% annual payout) | 3–6% | >8% or <1%
FCF Yield (Free cash flow ÷ market cap) | >5% | <2%
Debt-to-Equity (Debt ÷ equity) | <1 | >2

P/E (Price-to-Earnings): Price per $1 of earnings; under 15 signals a bargain. Apple’s 10 P/E in 2016 led to a 500% gain. Sears’ 5 P/E in 2015 hid a dying business—bankrupt by 2018. NasdaqShares MagazineReuters
P/B (Price-to-Book): Price vs. net assets; under 1.5 is a steal. JPMorgan’s 1.2 P/B in 2020 doubled by Q2 2025. Bed Bath & Beyond’s low P/B? Liquidated in 2023. FinanceChartsAxios
Dividend Yield: Annual dividend ÷ stock price; 3–6% cushions losses. Verizon’s 6% yield ($0.6775 quarterly, $2.71 annualized) steadies its 5% YTD gain. AT&T’s 7% yield didn’t save it from debt, down 10% in 2022. Verizon
FCF Yield: Free cash flow (cash after expenses) ÷ market cap; over 5% shows health. Walmart’s 4% FCF yield supports its 8% YTD rise; GE’s weak FCF pre-2020 tanked it 50%. FinanceCharts
Debt-to-Equity: Debt ÷ shareholder equity; under 1 means resilience. Caterpillar’s 1.8 in Q2 2025, plus tariffs, sank it 5% YTD. Macrotrends

Use screeners like Finviz or Morningstar to filter: set P/E <15, P/B <1.5, yield 3–6%, debt-to-equity <1. Check 10-Ks on SEC.gov for revenue and free cash flow (FCF) trends.

Strategies to Find Undervalued Stocks

Deep Value Screens
Filter for P/E <10, P/B <1. JPMorgan’s 1.2 P/B in 2020 doubled by Q2 2025. Screen for debt-to-equity <1 and check earnings calls for growth plans. FinanceCharts

Dividend Anchors
High-yield stocks (3–6%) signal value if sustainable. Verizon’s 6% yield, 50% payout ratio, backs its 5% YTD gain. Avoid AT&T—7% yield, 1.4 debt-to-equity. Screen for payout ratios <60%. VerizonGuruFocus

Sector Bets
Tariffs create bargains. Energy like Chevron (down 2% YTD, 4.8% yield, 1.2 P/B) is bruised but cash-rich. Domestics like Walmart (up 8% YTD) and Target (up 6% YTD, 3% yield) thrive. Screen for P/B <1.5 in tariff-hit or domestic sectors. FinanceCharts+1

Biggest Mistakes to Avoid

Value Traps: Sears’ 5 P/E, 10% yearly revenue drops—bankrupt 2018. Check sales trends. Reuters
High Debt: AT&T’s 1.4 debt-to-equity crushed returns. Stick to <1. Macrotrends
Dilution: Share issuance kills value—check 10-Ks for share count growth.
Impatience: Value lags in bull markets; quitters miss JPMorgan’s 7% YTD. FinanceCharts

Margin of Safety

Buy 20–30% below intrinsic value, calculated via discounted cash flow (DCF, projecting future cash flows) or P/E multiples. If JPMorgan’s worth $200, buy at $140–$160. Caterpillar’s 1.5 P/B, 4% yield needs a buffer due to tariffs. Macrotrends

Your 2025 Playbook

Read Graham’s “The Intelligent Investor” for mindset.
Screen Finviz for P/E <15, P/B <1.5, yield 3–6%, debt-to-equity <1.
Check 10-Ks for revenue, debt, FCF trends.
Diversify across 5–10 stocks—avoid all-in bets like Sears. Reuters
Hold 3–5 years; sell if fundamentals (revenue, debt) erode.
Track Fed cuts (boosting growth’s 12% YTD) and tariffs (hurting energy). ReutersBlackRock

Bottom Line

Finding undervalued stocks takes discipline and patience. Want to spot the next JPMorgan before it doubles or avoid the next Sears before it collapses? Phaetrix’s tools cut through market noise to pinpoint true bargains. Pair this with our Value Playbook for the full picture—mindset and method.