Beyond Valuation Ratios: 3 Undervalued Stocks To Buy In May 2025

Undervalued stocks are yet to grow into their promise and potential. In investing, value often hides behind misunderstood narratives and overlooked shifts. While valuation ratios may be a good starting point to scout for value stocks, the actual story spans beyond spreadsheets. A high P/E didn’t stop Amazon, Tesla or Nvidia from becoming multibaggers – just as a low P/E couldn’t save GE, Sears, or Kodak from decline. That’s why one shouldn’t rely solely on conventional valuation tools for identifying undervalued stocks. Instead, the picks below focus on companies undergoing meaningful transformations that signal a compelling trajectory.

How These Undervalued Stocks Were Chosen

• At least two stocks featuring a forward price/earnings to growth (PEG) ratio below both the sector median and their own five-year average, implying potential undervaluation relative to earnings growth.
• Companies with relatively lower tariff exposure, investing in long-term growth for lasting value creation
• Stocks with a “Buy” rating.

3 Top Undervalued Stocks to Buy In May 2025

1. Eli Lilly (LLY)

Eli Lilly Business Overview

Eli Lilly’s leadership in weight-loss and diabetes treatments has made it the most valuable healthcare company globally. On May 1, Lilly’s shares dropped 12% for two reasons:

A solid quarterly earnings report was overshadowed by lowered annual profit outlook, reflecting charges from its cancer drug acquisition

CVS Health’s decision to exclude Lilly’s blockbuster obesity drug Zepbound from some lists of medicines it covers for reimbursement, starting July 1, and favoring rival Novo Nordisk’s weight-loss drug Wegovy.

Investors worry that CVS’s move could dampen Zepbound’s prescriptions, since Pharmacy Benefit Managers (PBMs), like CVS Caremark, wield significant influence on insurance coverage for drugs.

Why LLY Stock Is A Top Choice

Lilly shares have recovered 3.4% since the sell-off, which may have been overdone. Although the CVS’s PBM dynamics may create near-term headwinds, success will hinge on Lilly’s ability to navigate formulary shifts and secure access deals with other top PBMs. Large employers can still customize coverage plans to include Zepbound. Analysts are increasingly betting that Eli Lilly will win the obesity race in the long-term.

Is Eli Lilly’s Zepbound Superior To Novo Nordisk’s Wegovy?

With a 53.3% share, Lilly dominates the U.S. market for incretin analogues – a class of drugs that covers Zepbound and its type 2 diabetes drug Mounjaro.

Zepbound is the preferred weight loss medicine vs. Wegovy and has consistently beaten the latter in U.S. weekly prescriptions. For the week that ended April 18, Zepbound is estimated to have 338,899 prescriptions significantly outpacing Wegovy’s 211,103.

Lilly says Zepbound’s dominance stems from its clinical superiority. In head-to-head trials, Zepbound (tirzepatide) achieved a 20.2% weight loss over 72 weeks vs. 13.7% for Wegovy (semaglutide), recording a 47% relative decline. Also, about 31.6% of Zepbound users lost at least 25% of their body weight, compared to just 16.1% with Wegovy.

Lilly’s recent success with its weight loss pill adds more weight to the argument. Lilly’s orforglipron pill has all the trappings of a blockbuster in the making, because the GLP-1 drugs currently in the market are injectables and require refrigeration. Lilly’s GLP-1 pill’s safety and efficacy are comparable with the injectable drugs, rendering it optimal for the needle-averse. On the other hand, Novo Nordisk’s GLP-1 pill, Rybelsus, is not as effective as the injectables and has to be consumed in large doses. Lilly’s orforglipron pill did not show any adverse effects on the liver – a key differentiator because Pfizer recently halted its efforts to develop a GLP-1 pill citing a trial-related liver injury.

This is only the first of seven Phase 3 studies of oral orforglipron, with additional data readouts expected later this year. Lilly aims to file for global regulatory approval for the orforglipron pill for weight loss by year-end and for type 2 diabetes in 2026. An FDA approval for the orforglipron pill next year could cement Lilly’s future leadership in the weight loss landscape. Upon approval, Eli Lilly believes in its ability to launch oral orforglipron worldwide without supply constraints.

Strengthening U.S.Manufacturing: A Strategic Advantage Amid Tariff Pressures

Since 2020, Lilly has committed over $50 billion to U.S. manufacturing, including its recent plans to build four new facilities, three of which will make active ingredients in medications. As the U.S. relies heavily on foreign sources for active pharmaceutical ingredients (APIs), Lilly’s initiatives will help increase domestic API production – narrowing gaps in the supply chain related to API availability in the nation. Reshoring manufacturing to the U.S. reduces import reliance, and helps mitigate potential tariff risks, especially as political discussions swirl around increasing healthcare-related trade barriers. While current tariffs have minimal effect on Lilly’s 2025 outlook, broader trade tensions could be disruptive to the industry as a whole.

Robust Drug Pipeline

Mounjaro and Zepbound remain key growth drivers, with sales of $3.8 billion and $2.3 billion, respectively, for the first quarter of 2025, aligning with market expectations. Mounjaro has already launched in over 40 countries with recent debuts in India and Mexico. More international launches are planned for the year.

Expanded indications for existing drugs, such as Zepbound’s recent FDA approval for treating obstructive sleep apnea in obese adults, are also opening new markets for Lilly.

Key drugs Ebglyss, Jaypirca, Kisunla, Mounjaro, Omvoh, Verzenio and Zepbound now account for $7.5 billion of Lilly’s revenue. With a significant pipeline in various stages of the drug development cycle, Lilly seems poised for continued growth.

LLY Stock Valuation

LLY trades at a forward PEG of 1.29 vs. sector median of 1.79 and historical 5-year average of 2.13. A potential re-pricing to sector PEG implies 35%+ potential.

2. Ulta Beauty (ULTA)

Ulta Beauty Business Overview

Ulta Beauty is a U.S. beauty retail chain offering a wide range of cosmetics, fragrances, skincare and hair care products, along with in-store salon services.

The beauty retailer has two great advantages: It operates in a resilient category with lasting relevance, and its lower reliance on imports renders it less vulnerable to tariff risks.

For those who argue that beauty spending is discretionary, is it really? In today’s social media-dominated world, where users constantly create and upload visual content, appearances matter more than ever. This drives sustained consumer engagement with beauty, blurring the line between necessity and luxury.

Why Is ULTA A Top Stock Pick?

ULTA lost share in the beauty market for the first time in 2024, so the company is vowing to amp up its stores and e-commerce efforts. About 80% of Ulta Beauty’s sales come from its stores, and it has over 1,400 in the U.S.

The tariff risk for Ulta is relatively low, as only 1% of its receipts were direct imports in 2024. While some exposure remains via brand partners, Ulta Beauty’s core is aligned domestically. Besides, beauty is a resilient category in retail, driven by social media and consumer behavior.

High-profile brand launches and collaborations are expected to support accelerating sales trends going forward.

So far this year, Ulta Beauty has launched several notable exclusive brands, including fan-favorite MILK MAKEUP, K-beauty skincare brand ANUA, and Beyoncé’s hair care line, Cécred. Besides, Ulta Beauty is officially partnering with Beyoncé’s Cowboy Carter Tour from April through July 2025.

The retailer plans to expand its international footprint via partnerships, with proposed launches in Mexico and Middle East this year. Ulta will also scale its accretive wellness business, by leaning into categories like nutrition, sleep, everyday care and mindfulness, and adding at least 20 new brands to its wellness assortment. A new marketplace will be launched to enhance its e-commerce reach.

Investment in these initiatives are expected to pressure profitability in 2025, but should also set the stage for driving long-term sustainable growth in a competitive innovative category.

Ulta will also target cost optimization of $200 million to $250 million over the next three years. It has already delivered $550 million in cost savings since 2019, across merchandising, real estate and operational process improvements.

Easing of intense competitive pressures in the prestige cosmetics segment should help. At the end of 2024, about 90% of Ulta Beauty’s stores were impacted by one or more competitive openings with two-thirds of stores impacted by multiple competitive openings. And, in 2024, Ulta Beauty actually lost market share. Now, Ulta expects a lower impact on its store fleet compared to what it experienced in 2024, as the stores impacted by competitive pressures are beginning to see those negative effects diminishing, implying that a turnaround may be taking shape.

Ulta’s loyalty program reached a record high of 44.6 million members, growing by 3% in 2024. Growth in the beauty category is expected to be in the low-to-mid single-digit range over the next few years.

ULTA Stock Valuation

ULTA stock is down 9% year-to-date, amid broader tariff-induced market decline. ULTA’s forward PEG ratio is 1.13 – lower than its 5-year average of 2.19 and sector median of 1.45. Even a simple repricing to sector Price/Earnings-to-Growth (PEG) should result in a more than 25% gain.

3. Agnico Eagle Mines (AEM)

Agnico Eagle Mines Business Overview

Agnico Eagle is a Canadian-based senior gold mining company with shares up over 70% in the past year. AEM may not appear undervalued based on traditional valuation metrics, but still presents compelling value to investors. Sounds contradictory?

Analysts at Jefferies believe that gold mining stocks are yet to catch up with the recent surge in gold prices. While gold currently trades at around $3,300 per ounce, the valuation of gold mining stocks would suggest only a gold price of $2,500 per ounce. After citing this disconnect, Jefferies raised the price target for Agnico Eagle. This implies that AEM’s price is yet to fully reflect the gold rally.

Here’s Why AEM Stock Is A Top Pick

AEM operates in top-tier mining jurisdictions, such as Australia, Canada and Finland, with high geological potential and low geopolitical and operational risk. This offers hidden value amid the rise of geopolitical tensions and growing concerns over resource nationalism this year.

Backing this view, Bank of America recently raised its price target on AEM to $142, representing nearly 25% upside from AEM’s last closing price of $114.3. This clearly highlights that AEM’s upside potential is still under-appreciated.

AEM also stands out with its exceptional per-share growth, low-cost profile and a strong long-term organic growth pipeline extending into the 2030s.

Growing Profitability And Strong Free Cash Flow Generation

Adjusted net income per share has doubled in the last 5 quarters to a record $1.53 from $0.76 in the first quarter of 2024, while free cash flow rose to $594 million from $396 million. At current gold prices, AEM sees significantly higher free cash flow in subsequent quarters.

Significant Deleveraging And improving Credit Profile

Net debt reduced to $5 million at the end of the first quarter of 2025 from year-ago $1.32 billion. During the quarter, Moody’s revised its rating outlook for AEM from stable to positive.

Growing Production From Tier 1 Sites

In the last 5 years, the company has doubled production from 1.74 million ounces in 2020 to 3.49 million ounces in 2024. What’s notable is that AEM has also grown its share of production from top jurisdictions. More than 95% of production now comes from Tier 1 jurisdictions, up from 87% at the end of 2020. First quarter’s payable gold production of 873,794 ounces at all-in sustaining costs (AISC) of $1,183, supports AEM’s 2025 production guidance, of 3.35 million to 3.55 million ounces of gold at an AISC of $1,250 to $1,300 per ounce.

Organic Growth Potential From Promising Mining Pipeline

AEM’s Detour Lake mine has the pathway to becoming a one million ounce/year producer, and Hope Bay has a target of over 400,000 ounces a year, while Upper Beaver, a brand new mine could add over 200,000 ounces a year. AEM’s Canadian Malartic may have the potential to produce over a million ounces a year.

Low Tariff Impact

At this time, AEM believes that tariffs will have no impact on its revenue, as its gold is refined outside the U.S. On the cost side, about 60% of its costs are either labor or energy, and there should be no tariff impact. Even on the remaining 40% of the costs, AEM has a robust, local supply chain and this should keep any tariff impact minimal. Overall, AEM sees a modest 3% to 4% impact from tariffs.

Safe Haven

Gold is truly a safe haven amid recession concerns. So, the rise in gold prices will catalyze the forward direction for AEM, as it strives to maintain its gold reserves at over 10 times its annual gold production rate. As of Dec 31, 2024, AEM has Proven & Probable Gold Reserves of 54.3 million ounces gold.

AEM Stock Valuation

Bank of America recently raised its price target on AEM to $142, representing nearly 25% upside from AEM’s last closing price of $114.3 at the time of writing. This clearly highlights that AEM’s upside potential is still underappreciated.

Bottom Line

Conventional valuation metrics often miss the broader picture. The stocks highlighted here include Eli Lilly (LLY), which is poised to dominate the obesity treatment market, despite near-term PBM headwinds; Ulta Beauty (ULTA), a turnaround bet with relatively lower tariff risks; and Agnico Eagle Mines (AEM), which is not a textbook value play, but offers hidden value through premium jurisdictions and a valuation lagging gold prices.

Please note that I am not a registered investment advisor and readers should do their own due diligence before investing in the stocks mentioned in the article, or any other stock. I am not responsible for the investment decisions made by individuals after reading this article. Readers are asked not to rely on the opinions and analysis expressed in the article and encouraged to do their own research before investing.

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