5 Deeply Undervalued Large Cap Stocks Set to Soar in 2025
Unlocking Hidden Value: Discover Why These 5 Stocks Could Lead the Market in 2025
Margin of Safety is a cornerstone concept of value investing. It serves two purposes:
A large margin of safety indicates, as the name suggests, the stock is a safe(r) investment. This is because the current share price is below the fair value of the stock by a large amount (which is the margin of safety), and,
The margin of safety also indicates the distance between the current stock price and the fair value. All else being equal, the market will eventually restore the stock to its fair value, and therefore, this gap reflects the profit potential of the stock.
This particular screen was run on the large cap stock universe, which is defined as a market capitalization higher than $5 Billion.
To calculate the Margin of Safety, you need two numbers:
The current stock price, and,
The fair value of the stock.
The current stock price is easy - you can just look it up on your favorite financial website. The fair value of the stock is an estimate and you can use many different ways to do this. For this particular screen, the fair value is estimated using discounted cash flow. The growth rate is estimated using the forward EBITDA growth rate which then decays over time to the long term average for the industry (the terminal rate is the industry average). The company WACC (Weighted Average Cost of Capital) is taken as the discount rate.
This is the method used in Stock Rover, my research and analysis tool of choice to calculate margin of safety. You should back this up with other valuation analysis before you make any investment decisions. If I decide any of these stock merit deeper due diligence, I will post my report for the paid Premium subscribers.
None of this is investment advice.
We are looking for top stocks with margin of safety > 30%. This implies an upside potential of at least 43%, if the stock reaches its fair value.
Top 5 Stocks that Match this Criteria
These stocks are ranked by their margin of safety and I will present them to you starting #5 and then go up to #1. Let’s start with the VTRS 0.00%↑ and GXO 0.00%↑ stocks.
#5 VTRS 0.00%↑ Viatris
Viatris is the largest generic drug maker in the world. It was formed in 2020 when the Upjohn unit of Pfizer combined with Mylan Pharmaceuticals. Generics and Biosimilars make about 40% of Viatris sales, the remaining 60% come from the legacy drugs such as Lipitor, Viagra, Norvasc and Lyrica. Since its formation, the company has been in the process of rationalizing its portfolio by divestitures, rapid debt repayments, etc. and has incurred losses in the past year in the process. The company is also committed to shareholder returns and currently pays a dividend yielding 3.9%.
Based on the current projections, the stock today presents us with a 36% margin of safety. In the past 1 year, the stock has appreciated about 21%, but a significant value in the stock remains.
This may be a blue chip company in the making but it is going through a period of settling in the business. The stock today appears to be offered at a good discount and this may be something for you to consider.
#4 GXO 0.00%↑ GXO Logistics
GXO Logistics provides supply chain optimization, warehousing, ecommerce, transportation and automation solutions to blue chip companies worldwide. The company was formed in 2021 as a spin off from XPO Inc. XPO Inc and its other spinoff United Rentals are 2 of the best performing stocks of the last decade. Brad Jacobs is the founder of these companies.
Fun fact: Circa 2003 I owned about $40,000 worth of XPO stock when it was Express-1 Logistics with contracted drivers who brought their own trucks. It had an “asset light” business model. It was a small-cap value stock in a commodity business. I bought the stock since it was temporarily depressed due to questions around a contract renewal (as per my recollection). The average volume on the stock was very low as the market didn’t care. The stock at that time was below $1 per share split-adjusted. Today the stock is at $132/share, and if you include all the spin-offs, those shares would have been worth considerably more.
I sold too early, so this is a fond memory.
Coming back to GXO, the company has around 970 warehouse locations covering 200 million sq ft of warehouse space. It counts 30% of the Fortune 100 companies as its customer. Its 2023 revenue was $9.8 Billion.
Based on the current projections, the stock trades at about 40% margin of safety. In the past 1 year, the stock has lost 32% of its value. The company was weighing multiple buyout offers, apparently around $70/share, but eventually they decided not to sell themselves. The CEO also plans to retire in 2025. These 2 events have caused the stock to sell off, and hence the opportunity in the stock (which I fear is very fleeting).
I am definitely interested in pursuing this stock further. Look out for a report for the Premium members soon.
Now let’s look at the stocks ranked #3, 2 and 1.