3 Undervalued Stocks Poised to Shine in the Next Market Rally

Key Points

• As rate cuts are around the corner, it is clear that some names will start to do well, especially those that now trade at discounted prices.
• With a strong fundamental setup, these names could easily soar in the coming months and quarters.
• Wall Street analysts are bullish, and EPS expansion could be ahead.

New all-time highs on stocks have been the average operating stance over the past couple of quarters; however, not all stocks and industries are being treated equally. Most of these returns are in the technology sector, whether for right or wrong, bringing valuations in that space to record levels that have trickled up into the broader S&P 500 index.

All this attention (and capital) headed to these select few names leaves a lot of room for others to catch up; all they need is to see their fundamentals recognized by a broader base of investors and media coverage, which makes it a matter of time before they start to outperform their peers and the market as well.

With that in mind, investors can now welcome names like Adobe Inc. NASDAQ: ADBE, Southwest Airlines Co. NYSE: LUV, and Ulta Beauty Inc. NASDAQ: ULTA into their portfolios for the coming months ahead. Not only are their prices disconnected from their intrinsic values, but the price action is also far from that of their close peers, creating some upside opportunities.

Adobe Is Missing the Party, But It’s Invited

Companies that utilize artificial intelligence have been treated differently in this current cycle, as if they could do no wrong simply by being exposed to the fastest-growing technology trend in the world today. Adobe, despite using artificial intelligence in its own software product suite, isn’t getting the same sort of treatment.

This company now trades at only 59% of its 52-week high levels, leaving tons of room for it to move higher under the right conditions. These conditions might come about when a rotation is triggered on the coming Federal Reserve interest rate cuts in September 2025.

Even with this lackluster performance recently, Adobe still commands a consensus Moderate Buy rating from Wall Street analysts, who also value the stock at $452.7 per share, implying a net 29.7% upside potential from its current trading price.

One of the biggest tailwinds to bring this forecast home is the fact that content creation (Adobe’s home turf for software solutions) is taking over the entire economy. Whether it is for marketing purposes, education, or even digital products, the fact is that a larger share of business is being done online in this sense more than ever before.

Southwest Airlines’ Big Catch Up

Low oil prices have created a beneficial environment for transportation companies, especially the fuel-heavy airlines. As the First Trust Nasdaq Transportation ETF NASDAQ: FTXR holds most of its picks in the airlines space, investors can see how well this area is doing in real time.

The exchange-traded fund (ETF) outperformed the broader S&P 500 by nearly 5% over the past quarter, with most of the biggest American airline names beating on earnings expectations and rallying by double-digits. However, Southwest Airlines has fallen behind by trading at only 83% of its 52-week high, and there’s a reason for that.

This company operates in the regional route space, and it’s best known for its ability to hedge fuel costs (which isn’t valued by the market today, given low oil prices). While these aren’t seen as benefits today, potential rate cuts could make these factors attractive again.

Lower interest rates could boost domestic travel plans again, and also economic activity, which goes hand in hand with oil demand. If oil prices were to rise, Southwest’s hedging ability would likely be valued at a premium by markets, which is maybe why the stock commands a 47.5x price-to-earnings (P/E) ratio above the industry’s 13.8x average valuation.

Ulta Won’t Go Out of Style, Wall Street Knows This

No matter what people say, Ulta will continue to perform well, regardless of the Federal Reserve's actions or the state of the United States economy, as its consumer base will likely always have room in their budgets for skincare and makeup products. This is why some Wall Street analysts have taken this winner into account as a hedge.

If the Fed cuts rates, then Ulta can expand its growth plans and consumer benefits. If it doesn’t, then Ulta can be a refuge for disappointed investors. For this reason, a few analysts decided to stand out from the consensus Hold rating and $543.1 per share price target set as the consensus today.

One of these standouts was Barclays’ Adrienne Yih, seeing Ulta stock as an Overweight valued at $617 per share (implying 20% further upside). All told, there must be a reason why the company has gone on a 10.6% rally over the past quarter alone; markets know it is up to something.