I Found the Most Undervalued Stock in the Entire Market (Multibagger Potential)

[00:00:00] Speaker 1: The stock market is sitting near an all-time high. So you'd assume that almost everything is going great, right? Well, take a look at this chart. Right now, 134 of the 500 biggest companies in America have crashed at least 40% from their highs. Some are down 70, 80, or even more. That's about one in every four companies. So here is the million-dollar question. Are these businesses broken for good, or has Mr. Market quietly handed us a few incredible bargains hiding in plain sight? Today, we're going to go hunting for some of the most undervalued stocks in the entire market. Now, here's what's so strange about this moment. The S&P 500, which is the index of America's 500 biggest companies, is up about 14% this year and sitting near a record high. But that's mostly because a handful of giant AI winners are carrying the entire market on their backs. Underneath that shiny surface, a huge chunk of the market is bleeding. Now, this chart behind me shows all 134 companies that have fallen 40% or more from their peak. These are names that you know well. Nike, PayPal, and Adobe are part of it. These 134 stocks didn't all crash for the same reason, so let's quickly sort them into groups. First, software and internet names like Adobe down 65% and Intuit down 63%. Investors suddenly feared that AI could do the very work that these companies charge for. Second, payments and credit scoring like PayPal, which is down 82%, and FICO, which is down 70%, spooked by new competition. Third, housing and real estate like Lennar down 60%, crushed by high mortgage rates. Fourth, consumer brands like Nike down 80% and Lululemon down 82%, fighting weak demand and tougher rivals. And guys, it keeps on going. Media and telecom are squeezed by cord cutting and streaming wars. Healthcare is facing patent cliffs and pricing pressure. Household brands like Hershey and Clorox are hit as shoppers trade down to cheaper store brands as their budgets get tighter from inflation. Then there are utilities, chemicals, and so many more sectors. So somewhere in this list of 134, there could be great businesses that the market is getting wrong. That's where we're going to go hunting. But here's the trap that we absolutely have to avoid. And it's the single most important idea in this whole video. A stock being down 80% does not automatically make it cheap. If a company's profits have permanently collapsed, that stock can be down 80% and still be expensive. So a giant drop is only the starting point of the hunt. It is never an answer by itself. And the math cuts both ways. A stock that's down 80% has to rise 400% just to get back to its old high. But the hopeful part? You don't need the old high. If you buy a stock at a great price, even a partial recovery can double or triple your money. What we're really after is one specific situation. A strong business where investors have become far too negative, where the stock fell much further than the actual business did. When the gloom is overdone and the company keeps making money, that gap between the scared down price and the real value is exactly where fortunes get made. And when a cheap stock recovers, it can multiply your money three different ways at once. Its earnings grow. Investors become willing to pay a higher price for those earnings and buybacks shrink the share count. If you stack all of those three together, a stock can triple without the business itself even tripling in size. So how do we know that that gap between price and value is real? Well, let me show you the perfect example from just a few years ago. Rewind to late 2021. And guys, this is something we did. Meta, the company behind Facebook and Instagram, had crashed to around $88 a share from well over $300 per share. Investors were absolutely convinced that it was in deep trouble. TikTok was stealing everyone's attention. Apple had damaged its advertising business. And the boss, Mark Zuckerberg, seemed to be lighting billions of dollars on fire, chasing the metaverse. The crowd basically decided that Facebook's best days were behind it. But here's what they missed. Under all that fear, Meta still owns some of the most powerful advertising platforms on earth, used by billions of people. And here is the most important part. Not only was it making an absolute fortune, every single year, the numbers were getting better. The advertising revenue was getting better. The revenue per user was getting better. And then Zuckerberg declared a year of efficiency. He slashed costs and he started a massive $40 billion stock repurchase. The result? By early 2025, Meta had soared to around $689 per share, nearly eight times higher. Its profits jumped from $23 billion to over $62 billion. And this is the lesson that matters the most. The market wasn't wrong that Meta had potential problems. It was wrong about how strong its core money machine truly was. Guys, pretty much every negative story in a company has some grain of truth to it. The question is, was it exaggerated? This is the exact kind of mistake that we're hunting for today. So let's look at three brand new candidates. And guys, before we dive into them, I want to remind you, never take our title and thumbnail literally. We're never here to give a stock tip. We are here to teach you a process that you can then apply to your own investing. So out of all 134 stocks back here, we picked three where the businesses look like it held up way better than the stock price. First up, Lennar, one of America's biggest home builders, down about 60%. So why did it fall? Well, very simple. High mortgage rates, combating low mortgage rates in addition to inflation. So when people are locked in these low loans and then loans get expensive, fewer people can afford a home. So Lennar, a home builder, has to offer bigger discounts just to keep on selling. And that squeezes its profits very hard. Last quarter, its earnings fell by nearly 50%. That is the heart of the bear case. If high rates stick around for years, people think that the pain will just keep on dragging on. I disagree. More on that later. But this is where it gets interesting. Berkshire Hathaway, the legendary firm built by Warren Buffett, has been aggressively buying Lennar. More than doubling its stake to roughly 12% of the whole company. Now, to be fair, we can't say that Buffett himself picked this. It may well be one of the investment managers or the new CEO, Greg Abel. But somebody at Berkshire clearly sees deep long-term value. The bull case? America still badly needs more homes. Lennar is getting leaner and more efficient. And if rates eventually ease, its profits could come roaring back. So let's run the numbers. So guys, here's Lennar. Now, a lot of people are going to say this is the price of Lennar, which is the sticker price on the stock. That is not the case. The real price of the stock is the market cap. $18.35 billion. Yes, you're buying a piece of it. But this is if you're buying the whole company. That's the way I want you thinking when you buy a stock. The next thing I look at is their enterprise value. This is essentially the market cap plus all of their debt, less their cash and cash equivalents. So they essentially have $10 billion in debt. Now, that's a lot, considering they only generated $700 million in free cash flow last year. But their free cash flow is down significantly. Their five-year average is $2.3 billion. So it's not so bad when compared to that. The other thing I want to look at is how much of their debt is from current liabilities versus long-term. Okay, it's mostly long-term liabilities. All right. So it's something to consider to understand long-term what they're doing. Next, returns on capital. Ooh, these are bad. Very low returns on capital. I don't like that. I'm actually surprised that Berkshire is buying it with this low return on capital. What this means is they get low returns on the money that's invested in the business. That's kind of problematic. But in and of itself doesn't mean that you don't buy it or you do buy it. Now, here's what's interesting. Look at their current price of free cash flow and look at their current PE and five-year PE. Look at how low their five-year average is. They're selling for five times five-year earnings and eight times five-year free cash flow. If you believe that they're going to get back to that level very quickly, this looks dirt cheap, right? Because on a one-year basis, it's not as good. Although the PE is pretty good for the one-year basis. But from a free cash flow perspective, it doesn't look as good. And also keep in mind, guys, their free cash flow is typically a lot lower than their net income. So also think about that going forward. And of course, look at this revenue growth. 12% a year for the last 10 years, 6% for the last five, negative 1% for the last three years. And their profit margin. Five in 10 years is over 10%. One year is 5%. Showing their discounts they've had to give in order to sell the product. All right, let's go check out our eight pillars. All right, so guys, we have five checks, which is pretty good, and three Xs. One thing I like is if they think their stock is cheap, they're starting to buy back shares. Let's see how it's been looking. Because guys, if you have our software, remember, you click on this chart, and I love this. They're consistently buying back shares quarter after quarter after quarter. Especially recently, as the stock falls in price. I love that. That's probably why Berkshire likes the company a lot. Now, obviously, cash flow and net income are down a lot, understandable. While revenue growth over the last five years is still up. So guys, overall, it's all about, does this get back to normal levels? That's what it's all about here. And guys, like I was saying earlier, I don't believe we need lower rates for that to happen. We just need people accepting higher rates. People aren't buying now because they're like, I don't want to pay 7.5% because I paid 3% before. Eventually, their incomes will go up, and people will become used to 7%, 7.5%. If it sticks around. And also, guys, if you're part of our community, don't forget. You also have our AI button down here on the bottom right. Ask any question you'd like. Even seeing bull and bear case. You just click that right there, and it's going to start looking at that for Lenar right here on the spot. We use this, and we absolutely love it. Now, guys, the reason I teach on YouTube is I saw that people were attaching themselves too much to the story and not enough to the numbers. I believe it's about balance. So in order to teach that, what I've done for you is done something very, very simple and very awesome. Guys, I put together a special PDF with a full breakdown of the most undervalued stocks in this market, along with all these key metrics that will be explained to you and attached to those companies. If you're interested in finding real value, click the link below. Download this PDF immediately. It's absolutely free, and it's great to either start that way or enhance your thinking and your investment learning by doing that. And, guys, in just a couple of minutes, I'm going to get to the price I'm willing to pay for Lenar. But first, let's check out what analysts think about this company going forward because they're paying attention to rates and everything. And it's only two or three years out, but they have profit of $5.50 a share going to $8 per share in the next two years. Now, guys, if you think Lenar deserves 20 times earnings, hypothetically, it makes it $160 stock based on the EPS in 2028. And as for revenue, 3% and 4%. My guess is their revenue will probably grow on the same number of lots over and over again, same number of houses sold. Their revenue should grow 3% to 5% a year. If they're starting to build more houses, that can jump that up even further. So, here we are. We have a little bit of the story, a little bit of some numbers, and we're now here to make our assumptions in the Stock Analyzer. So, remember, our Stock Analyzer is looking at the future. What assumptions are we making for the future? I remind everybody, make sure you don't make overly aggressive assumptions and don't make overly conservative assumptions. Your job here is to make reasonable assumptions in the middle and then go a little bit lower and higher on the other side. So, let's start with what my assumptions were for the next 10 years. Guys, I did 3%, 6%, and 9% revenue growth for the next 10 years. Profit margin. I did 6%, 9%, and 12%. Same with free cash flow. But, guys, guess what? The free cash flow here is consistently lower than profit margin. You know, what you want to do here is up to you. I like to focus on free cash flow. I'd want to figure out why is it always a couple percentage points or three percentage points below their profit margin. That's something to understand. Next, what PE, what price to free cash flow would I assign to this company 10 years from now? The way to think about it is this way. If the S&P over long periods of time averages 15 to 17 times free cash flow or earnings, is this company better or worse than the S&P? Guys, here's one way to look at it. Returns on capital. I don't like these returns on capital. They're consistently lower than the market average. 7.5% for the last 10 years, 8.5% for the last 5. Yes, it was getting better. Hit a little bit of a roadblock here. But the last 5 have also been a booming market for real estate. So I wonder if this is reasonable. I actually went for 13, 16, and 19, saying it's about average. Not a lot of growth. Yes, they have decent returns on capital, but not great. They are buying back a lot of shares. But I still gave it 13, 16, and 19. And then finally, my 9.5% desired return. Guys, this is my no margin of safety, intrinsic value return. I'm going to hit the Analyze button. It's going to show some numbers here. I'm going to explain to you what they mean. That way, for the next two companies, you understand what we're looking at. So we hit the Analyze button, and here are the prices we have. We have a low price of $112, high price of $440, middle price of $235. Guys, what this means is, if my middle assumptions occur, and I pay today's price, I can expect a 28.5% return over the next 10 years based on discounted cash flow. If my low assumptions occur, 15%. High assumptions occur, 40% return. That's incredible. So in order for me to get a 9.5% return, I need to pay $112, $235, or $439, depending on low, middle, or high assumptions. I now see why Buffett and Berkshire Hathaway are interested in this company. Next up, PayPal. Down a jaw, dropping 82% from its all-time high. Why so brutal? Well, guys, back during the pandemic, everyone assumed that online payments would grow forever, and the stock got wildly overpriced. Since then, growth has cooled off, and tough rivals like Apple Pay showed up to fight for the checkout button. The stock is getting continuously crushed, and the bear case here is real. If newer, slicker payment options keep winning, PayPal's profits could slowly keep shrinking. But look a little closer, because this is a classic value setup, in my opinion. PayPal still has over 400 million active users, and processes hundreds of billions of dollars of transactions every single quarter, throwing off piles of cash. And it's using that cash to buy back about $6 billion of its own stock a year, while the price keeps getting beaten down. That is exactly the buyback engine that we talked about. It can push earnings per share even higher if the business just holds steady. But I'm going to show you some numbers here that might surprise you. And get this, another payments giant, Stripe, actually offered to buy the entire company for over $40 billion this year, and about $60 per share. I, as an investor, did not like that. I said it's worth far more than $60 per share. I will show you that shortly. But that deal fell through, so don't go counting on a buyout. But it does tell you that serious people believe PayPal's pieces are worth far more than today's price. So let's run through it right now. So guys, this is a $50 billion company with a lot of enterprise value. But a lot of that money in enterprise value, it's their total debt. It shows the money they have in their hands that they owe to other people. So when you deposit money at PayPal, or you're running transactions with PayPal, they hold that money that is a liability for them. So I'm not worried about this. A couple things I do like, 12.5% five-year return on capital and growing to 14.5%. Another thing I like, the dying business did $6.6 billion in free cash flow last year versus $5.3 billion for the last five-year average. And it's selling for seven and a half times free cash flow and nine times its five-year free cash flow. Guys, I love that. And guys, we talk about a company, people saying it's dying, 13% revenue growth for the last 10 years, 7.4% for the last five, 6% for the last one year. Let's go take a look at revenue right now. This is the annual revenue of PayPal. Yes, it is slowing down. It is not declining. The growth has slowed. It is not declining. Let's go look at it quarterly. Guys, this is a company that is down big time and people were saying it. I don't see this and think it's a declining business, but there could be things working underneath it. So let's go check out our eight pillars on the company. This is an eight pillar stock. But remember, just because it's eight pillars doesn't mean you go out and buy it. Just because it has eight checks doesn't mean you avoid it. It's about telling a story. And guys, this is the part I love the most. They've bought back 24% of their shares in the last five years. That is a company that is truly understanding that when a stock is cheap, you buy back shares. Look at this. They were basically consistent until 2022 when they just started buying back a ton of shares. So all they're doing is they're giving you more and more ownership of the company as time goes on. If the stock stays cheap, that's what we love to see. So what do analysts think about profit? Well, guys, they have profit growing from 538 per share to 758. If you multiply this by 20, you're looking at $150 stock in four years. It's currently at $50 or $55. That's almost triple in four years. If this all plays out with revenue growing 4%, 4.5%, 3.5%, 8%. Not a grower. But if you pay a cheap enough price, it makes it all worthwhile. So what is the best price to pay based on my assumptions? Well, guys, again, a 10-year analysis. I did 3%, 5%, and 7% revenue growth. Now, guys, I'm focusing here on free cash flow because the free cash flow here is higher than its profit margin. So I'm just going to zero out my profit margin and my PE, which is based on profit margin. So I'm going to focus on free cash flow. I'm doing 14%, 17%, and 20% free cash flow. Keep in mind, last year and their 10-year average are 19.3%. I made my middle assumption lower than that, 17%. Next, what price to free cash flow would I assign to this business 10 years from now? Well, guys, returns on capital are getting better. It does have a lot of competition, but I'm putting 15, 18, and 21. And then, of course, my 9.5%, no margin of safety. What is the intrinsic value return? Now, you just watched me take PayPal, a stock that's down 82% from its all-time high with tough rivals coming after it. And I plugged in my own numbers for growth, for margins, and for the price I'm willing to pay. Be honest with yourself for one second. If I shut this video off right now and I handed you any one of these 134 stocks, could you do that on your own? Could you tell me the price where it's a bargain and the price where it's a trap? Guys, don't feel bad if your answer is no. Most people cannot. And that's not a knock on you or them. Nobody ever taught you. So when a stock drops 60%, 70%, 80%, you're stuck with one of two bad choices. You buy on a gut feeling or you sit on your hands and watch. This is exactly the gap that our community fills. And what's it going to cost you to not know the price that you're willing to pay? That is the most important question in investing. What is the right price to pay? So what would it be worth to you to have the clarity on what a stock is worth before you put a single dollar in it? Now, guys, I'm quite sure you'd say it's worth far more than $1 a day to you. But guess what? Click the link below. Start our seven-day trial for $7. You get the same stock analyzer that I just used. You get a room full of people working the exact same process. So the next time a stock you like gets cut in half or more, you're not going to guess. You're going to know the price that you're willing to pay based on the assumptions you made. So click the link below. Let's try it out. Now, for PayPal's results. I hit the Analyze button. I scroll down. I have a low price of $80,000, high price of $190,000, middle price of $126,000. So what this means is if my middle assumptions occur, I'm going to make about a 22% return on my money. If my low assumptions occur, it's still 15%. And if my high assumptions occur, it could potentially be 30%. Now, I don't know where it's going to end up. But the point is if my low assumptions are still a 15% return and I had 30 companies like this, I'm probably going to do pretty well overall. And now, the most dramatic one of all, FICO, Fair Isaac, down about 70%. Guys, you probably know its famous credit score. That's the number lenders use to decide whether you get a loan and at what rate. For decades, FICO scoring business was a money printing machine with profit margins around 90% because nearly every mortgage in America required a FICO score. It was one of the best businesses on the planet. So why the sudden collapse in stock price? Well, guys, the rules just changed. The government opened the door for a rival called Vantage Score to compete in the mortgage market. And one huge lender, Rocket Mortgage, already said it's switching to it. FICO even announced it's cutting 15% of its workforce. That's the bear case, and it is a serious one. So if the real competition starts to take away more market share, those sky-high margins will likely shrink. Well, what's the bull case? Well, swapping out the credit score baked into an entire industry is a slow, risky, and complicated process. FICO is trusted, and it's deeply wired into how lending works. And guys, if a competitor shows up, FICO has those high margins. All they need to do is probably lower their price a bit, and they'd still make a lot of money. So if its moat even holds up partly, this stock may have fallen way too far. So let's analyze it. So guys, here is FICO. It is a $15.5 billion company with $21.5 billion enterprise value. So that $6 billion is essentially their debt, and they made $1 billion in free cash flow last year. What's amazing is, look at their five-year average, 650. So they made a lot more free cash flow last year. It was a big jump. I'm going to want to figure out why that is. Let's go to our cash flow statement and see if there's an immediate reason that jumps out at me. Guys, it just looks like their net income just jumped up a lot. Let's see if there's any one-time things that are net income. I mean, things look like it's just legitimate maybe. All right. Guys, look at these returns on capital. 50% for the last five years, 71% a year for the last year. It's selling for 15 times free cash flow, 19 times earnings. It's got growing profit margin. 10-year profit margin of 26%, five-year of 30%, one-year of 34%, and then their gross profit margin of 85%. And guys, look at these revenue growth numbers. 10% a year for the last 10 years, 12% a year for the last five, 17% for the last three. All right. Let's go check out the eight pillars. So this is what we like seeing. We see six check marks, buying back shares, and the only Xs are the five-year PE and five-year price of free cash flow. Now, remember, just because there's an X there does not mean it's overvalued. If they can grow their profit and free cash flow at a very high rate of return, high growth rate, these could be nothing. If they're going to grow their profit, let's say 30% a year for 10 years, let's go to an extreme. Those are cheap. The question is, how much can they grow their profit? Well, that's the bear case we're asking about. Are these competitors going to allow them to grow their profit, or will it impede their profit growth? That's the question we're asking. Let's take a look at analysts and what they think. Well, analysts think their profit's going to grow 21%, 18%, and 10% for the next three years. That's a lot of growth, guys. The stock's currently at $650 a share. At $83 a share times 20 is $1,700 stock. Another potential triple from these levels if they actually hit these numbers. And revenue growth, 12.5%, 9.5%, 4.5%. So let's go to our stock analyzer tool and run the numbers. So guys, our 10-year analysis, I originally did 6%, 9%, and 12% revenue growth. I'm actually going to decrease this a little bit. I'm going to go 4%, 7%, and 10%. Next, I'm going to focus on their free cash flow here because it's higher than their profit margin. I did 33, 38, and 43%. So again, I'm going to zero out the profit margin. Now, the PE and price of free cash flow, high returns on capital. Yes, they have competition, but they're still the dominant score. I'm still putting 18, 22, and 26 for my PE ratio and my price of free cash flow 10 years from now. And then finally, my 9.5% return. Hit the analyze button. Scroll down. All right, guys. So I have a low price of $618, a high price of $1650, a middle price of $1,021. So guys, for me, yes, this is still green on the middle and high assumptions, but it's not like the other ones where there was like green all the way across, which I love the most. So guys, ironically, the one company that I own, PayPal, is the one that I do think has the most potential. But remember, never buy a company because I or somebody on the internet says it. We're here to teach a process that will allow you to fish. But remember, if all of these prices fell in half, that would change the situation potentially if PayPal goes up. That's what you have to remember as an investor. Price versus value is going to determine whether it's a good investment or not. And guys, there is one more beaten down stock that we did not cover today that we think has a seriously compelling opportunity ahead of it with a real shot at multi-bagger returns from the right price. So if you want to see the numbers behind it, click this video right here on your screen. Thank you for your time.