3 Smart Picks: Discounted Stocks for Savvy Investors

Key Points

• To get the first quarter of 2025 on the right side of history, investors might want to pick up on these discounted value stocks before they rally.
• The fundamental stories behind them make sense, and their discount from highs won't last long.
• Wall Street analysts and institutional investors like the setups, so they've recommended them and bought them.

Now that the new year 2025 is getting started, most investors are focusing on getting ahead as far as they can in the first quarter so that they have an open field ahead of them during the rest of the year and not worry so much about the market’s fluctuations and volatility. One of the best ways to do this is by aligning portfolios with great businesses trading at a discount.

The heart of every value investor’s strategy and the viewpoint that will likely bring portfolios to a comfortable first-quarter performance in the coming months can be achieved by looking at some of the market’s best and strongest businesses today, which don’t have many of a reason to be trading at steep discounts. Yet, this is where the market gives investors rare opportunities.

Opportunities such as Adobe Inc. NASDAQ: ADBE to represent one of the technology sector’s best discounts today, or Advanced Micro Devices Inc. NASDAQ: AMD supporting a new wave in the semiconductor industry and sharing in some of Adobe’s tailwinds today. Even in the consumer staples sector, Hershey Co. NYSE: HSY proves to be an undeniable value play at today’s discounts.

Adobe Stock: Not Far From Buffett’s Bet

Recently, Warren Buffett decided to acquire a stake in the online domain and security company VeriSign Inc. NASDAQ: VRSN, where his thesis might be centered around the growth and adoption of the digital economy, which some might call the creator economy.

While companies like Alphabet Inc. NASDAQ: GOOGL and Meta Platforms Inc. NASDAQ: META provide the real estate of advertising and social media platforms, workers and businesses need tools like Adobe and VeriSign to develop upon this real estate. When it comes to Adobe, management knows exactly what’s happening.

Recently, insiders decided to switch the entire business model into a subscription-based business, where all of Adobe’s creator software products are bundled into a monthly subscription for customers to enjoy. Most—if not all—are happy to be locked into a 12-month contract with Adobe, and that says a couple of things about the stock.

First, they have a monopoly in this area, as management knows they have very few competitors who offer the all-in-one package that Adobe has achieved here. Second, financials are now more predictable and stable than ever under this new business model.

That's why, even though it trades at 66% of its 52-week high, Wall Street analysts feel comfortable keeping a consensus price target of $575.85 a share. Compared to today’s prices, that’s a 37.4% net upside.

Is AMD the Better Bet for Semiconductor Investors?

For most of the past 18 months, all the attention seems to have centered around NVIDIA Co. NASDAQ: NVDA and its role in developing artificial intelligence through new semiconductor technology.

Whatever merits the company has had for its stratospheric valuations, they have created a massive imbalance across the industry.

This imbalance can be seen in stocks like Advanced Micro Devices, which have been left behind. NVIDIA trades at 92% of its 52-week high, while Advanced Micro Devices has lagged significantly behind at 54% only. Some on Wall Street are beginning to pick up on this widening gap, and it shows through price targets.

For NVIDIA, a consensus valuation of $164.6 a share would call for a 17.5% upside from where it trades today. It is still attractive but nowhere close to Advance Micro Devices and its current $187.85 valuation. The latter would imply a run of up to 55% from today’s prices, significantly more attractive as a kickstarter for investors looking to get ahead in 2025.

Warning: Hershey Stock Might Compound Your Wealth

There are a few reasons why this is the case. First, the stock generates a return on invested capital (ROIC) rate of up to 23%, and this is the foundation of wealth compounding, as annual stock price performance tends to match the long-term ROIC rate over time.

Then, there’s the fact that the stock has fallen to a low of 77% of its 52-week high today, creating enough ceiling room to give investors a great risk-to-reward setup in the company. Taking advantage of this favorable setup, some institutional investors decided to take matters into their own hands.

Such as those from State Street, who boosted their stake in Hershey stock by 5.8% as of November 2024, bringing their net position to a high of $1.3 billion today, or 3.5% ownership in the company.

Of course, Wall Street forecasts for earnings per share (EPS) in the next 12 months might have influenced part of this decision.

Analysts now see up to $2.25 in EPS for the next 12 months, a significant boost of 77.2% from today’s $1.27 EPS level and another bullish factor for investors to consider moving forward in their buying decisions for 2025.