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Undervalued stocks are the clearance-rack products of the financial markets. They trade at bargain prices, offering investors low downside risk and good upside potential.
Unfortunately, promising bargain stocks can be hard to identify. After all, for most undervalued stocks, there is usually a reason why the stock price is low. Your job is to find that reason and evaluate its permanence. This is because temporarily downtrodden stocks can ultimately become the stars of your portfolio, while the permanently downtrodden will be disappointing.
Ready to try your skill at that evaluation exercise? Use the five undervalued stocks identified below as your test cases.
How These Undervalued Stocks Were Chosen
A thorough screen for undervalued stocks can do some of the evaluation work for you. Rather than focusing on valuation ratios, consider also incorporating tests for balance sheet health, cash flow growth and dividend yield. A healthy balance sheet helps a company withstand further stressors. Rising cash flow funds growth efforts. And, a good dividend yield pays you to wait until your stock appreciates to its full potential.
I used these seven metrics to identify the five best stocks in the undervalued category for January:
- Forward price-to-earnings (PE) ratio below 10
- Price-to-book (PB) ratio below 1
- Return on equity (ROE) above 10%
- Debt-to-equity below 0.75
- Forward dividend yield above 2%
- Trailing 12-months (TTM) free cash flow growth above 10%
- Price target upside of 10% or more
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5 Top Undervalued Stocks To Buy In January 2025
The table below introduces the five largest undervalued stocks right now, according to the parameters noted above. The first on the list, Murphy Oil Corporation, is a mid-cap. The others are small-cap stocks. Make sure you understand the business models and potential volatility associated with these small and mid-sized companies before you invest.
Table data source: Stockanalysis.com.
For more investing ideas, see best small-cap value stocks and best value stocks.
Now let’s dive into each of these stocks that are undervalued right now.
1. Murphy Oil (MUR)
- Stock price: $30.02
- Forward PE ratio: 8.7
- PB ratio: 0.88
- ROE: 10.3%
- Debt/equity: 0.40
- Forward dividend yield: 4%
- TTM free cash flow growth: 55.6%
- Price target upside: 36.3%
Murphy Oil Business Overview
Murphy Oil explores and produces crude oil, natural gas and natural gas liquids. The company has production assets in offshore and onshore Canada, the Gulf of Mexico and Texas. Exploration efforts are focused on the Gulf of Mexico, Vietnam and Cote d’Ivoire.
Why MUR Stock Is A Top Choice
Murphy Oil is transitioning to reduce debt, improve production efficiency, enhance exploration results and increase shareholder returns. The company recently restructured senior debt and increased its unsecured credit availability—while seeing promising exploration results in Vietnam.
Although some analysts have lowered their MUR price targets in recent months, the consensus price target is still about 30% higher than the stock’s trading price. The company pays a good dividend yield above 3.5% and has repurchased $300 million of stock so far in 2024.
2. Star Bulk Carriers (SBLK)
- Stock price: $15.88
- Forward PE ratio: 8.7
- PB ratio: 0.77
- ROE: 14.0%
- Debt/equity: 0.59
- Forward dividend yield: 15.1%
- TTM free cash flow growth: 24.9%
- Price target upside: 57.4%
Star Bulk Carriers Business Overview
Star Bulk Carriers is a large dry bulk shipping company. Dry bulk shippers transport large quantities of unpackaged commodities, such as iron, grains, sand and fertilizer.
Why SBLK Stock Is A Top Choice
Star Bulk merged with former competitor Eagle Bulk in April 2024. The transaction solidified the combined company’s leadership position in dry bulk shipping.
With an optimistic outlook on market conditions, Star Bulk remains focused on efficiency and smart capital allocation. The company recently sold off part of its fleet to capitalize on high vessel values, using proceeds to repurchase shares for less than book value.
SBLK also pays a huge dividend yield of about 17%. Note that the company’s dividend has fluctuated between $0.22 quarterly and $0.75 quarterly in the last two years.
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3. Dorian LPG Ltd. (LPG)
- Stock price: $22.61
- Forward PE ratio: 7.9
- PB ratio: 0.92
- ROE: 23.9%
- Debt/equity: 0.69
- Forward dividend yield: 17.7%
- TTM free cash flow growth: 24.3%
- Price target upside: 90.2%
Dorian LPG Ltd. Business Overview
Dorian LPG transports liquified petroleum gas through owned gas carriers called VLGCs (very large gas carriers). The company’s 25-ship fleet has a carrying capacity of roughly 2.1 million cbm. Dorian LPG has locations in the U.S., Greece, Denmark and Singapore.
Why LPG Stock Is A Top Choice
LPG stock has lost half its value since May 2024. Investors have been spooked by two consecutive quarters of sales and earnings declines. In the most recent quarter, the revenue declined 43% on lower TCE rates. TCE stands for time-charter equivalent, which is a shipping industry standard for measuring a vessel’s average daily revenue. Extreme weather incidents and overcapacity issues in China were influential in the decline.
The pullback creates a buying opportunity for thick-skinned investors. As with every pick on this list, LPG is trading below book value. It also pays a generous dividend. The company has been paying quarterly “irregular” dividends of $1 or more since early 2022. At the current stock price, the yield is 17%.
4. Global Ship Lease, Inc. (GSL)
- Stock price: $22.25
- Forward PE ratio: 2.4
- PB ratio: 0.57
- ROE: 26.0%
- Debt/equity: 0.49
- Forward dividend yield: 8.1%
- TTM free cash flow growth: 105.7%
- Price target upside: 30.3%
Global Ship Lease Business Overview
Global Ship Lease owns small and mid-sized containerships that are leased to shipping companies under fixed-rate time charters.
Why GSL Stock Is A Top Choice
GSL has outpaced earnings expectations for six consecutive quarters. The revenue performance has been similar, except for a slight miss in the most recent quarter.
GSL’s fixed-rate contract business model provides reasonable visibility, enables high utilization rates for its fleet and supports a healthy dividend. GSL currently has contracts for 76% of 2025 and 49% of 2026. Fleet utilization year to date in 2024 is 96.7%. And, the go-forward quarterly dividend of $0.45 equates to an 8% yield. Given the company’s reasonable payout ratio of 20%, the dividend looks to be sustainable.
5. Berry (BRY)
- Stock price: $3.90
- Forward PE ratio: 5.8
- PB ratio: 0.44
- ROE: 11.6%
- Debt/equity: 0.59
- Forward dividend yield: 3.1%
- TTM free cash flow growth: 23.0%
- Price target upside: 28.2%
Berry Business Overview
Berry is a California-based oil and gas explorer. The company primarily develops premium assets with low geologic risk in California’s San Joaquin Basin and Utah’s Uinta Basin.
Why BRY Stock Is A Top Choice
BRY stock is down nearly 70% since it was listed on the Nasdaq in 2018. The stock hit a low point in 2020 and rallied back to about $8 per share earlier this year. Unfortunately, three consecutive quarters of disappointing earnings have beaten down the stock price.
The company has recently refinanced its upcoming debt maturities, brought new wells online to increase production and increased its free cash flow. The leadership team does expect to reach the midpoint of its 2024 production guidance, but inflation and local market disruptions will increase expenses and reduce Ebitda in the well servicing and abandonment segment.
Berry does pay a dividend, but it has been inconsistent. The most recent quarterly dividend of $0.03 equates to a yield of 2.9%.
Bottom Line
Undervalued stocks can be heroes or zeros. Your best options are those that have healthy balance sheets, generate growing cash flow and pay an ample dividend. Diversifying your portfolio and carefully managing allocations to individual undervalued stocks can also help you make the most from these bargain-priced positions.
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