In the first week of February, stocks tumbled 10% (defined as a correction) from their all-time high on Jan. 26. Before that, the S&P 500 had climbed mostly without interruption since the last correction in mid-2015.
Sudden corrections certainly seem scary as they’re happening. But in reality, they present investors a rare opportunity to purchase quality stocks at a discount.
That’s why today we’ll show you the best three undervalued stocks to buy after the recent stock market correction.
Indeed, Money Morning Technical Trading Specialist D.R. Barton, Jr., doesn’t believe our current bull market is over.
nstead, he sees the recent correction as a short-term bottom that will be followed up by even higher highs.
According to Barton, the dramatic downturn was triggered by shorting activity against S&P 500 volatility. Specifically, the S&P 500 Volatility Index (VIX) shot through the roof this year, and traders began to short the index in anticipation of volatility returning to normal, lower levels.
This led some traders to purchase leveraged ETFs that move inverse to the VIX, like the VelocityShares Daily Inv VIX Short Term (Nasdaq: XIV).
The VIX is a derivative of the broad S&P 500, and the XIV is a derivative of that derivative.
And as you might imagine, traders betting on volatility led to more volatility, which caused both the VIX and XIV to implode, creating further volatility.
The XIV is now offline after its sudden implosion forced it to be dissolved, and the VIX has returned to more reasonable levels. Although at 18, the VIX is still at its highest level in the past two years.
As Barton points out, our economy’s fundamentals remain strong, meaning stocks should continue their bullish momentum.
And now is the perfect opportunity to grab some high-quality stocks at bargain prices.
Here are our three best undervalued stocks to buy after the recent market correction.
Top Undervalued Stocks to Buy No. 3: Nvidia Corp.
Nvidia Corp. (Nasdaq: NVDA) has been one of Money Morning Chief Investment Strategist Keith Fitz-Gerald’s favorite stocks. Fitz-Gerald considers it to be one of the leading tech companies thanks to its highly demanded graphics processing units, or GPUs.
Nvidia’s GPUs were traditionally used by people playing online computer games that required top-of-the-line computing power.
But NVDA stock didn’t really take off until investors realized the potential for GPUs to provide the computing power required to advance the fields of artificial intelligence, self-driving cars, and deep machine learning.
In addition, the increased popularity of cryptocurrency mining is also a boon for Nvidia’s GPU demand. As time goes on, mining cryptocurrency requires more computing power, and one of the most practical and cost-effective ways to increase computing power is to use more high-end GPUs.
Vice.com‘s Motherboard estimates global mining for Bitcoin uses as much energy as 821,921 American homes. And this is just the minimum power demand, not accounting for energy leakage. As a result, mining one bitcoin requires 5,000 times more energy than a single credit card transaction.
Since mining Bitcoin requires high-powered GPUs, buying shares of Nvidia is a safer way to play the cryptocurrency trend.
And that’s in addition to the company’s traditional gaming GPU business and newer artificial intelligence, self-driving cars, and deep machine learnings applications.
Shares of NVDA are up 142.85% in the last 12 months and 16% so far in 2018. Shares are currently priced at $246.40.
Nvidia has mostly returned to its pre-correction price, but the stock still has upside remaining.
Three different firms have a 12-month price target of $300 on NVDA stock. That implies upside of 21.75%.
Next up is a company with one of the strongest brands in the world.
Top Undervalued Stocks to Buy No. 2: Apple Inc.
Apple Inc. (Nasdaq: AAPL) was one of the top-performing stocks of 2017, and 2018 could be another excellent year.
In January, Apple announced its plans to invest $350 billion in the U.S. economy over the next five years, open a new campus, and hire a minimum of 20,000 new employees.
AAPL stock took a hit after it reported selling lower-than-expected volumes of its new iPhone X smartphone. Combined with the broad stock market correction, AAPL shares fell 13.4%, from $179 to $155, before rebounding back to $173. So far in 2018, AAPL shares are down just under 1%, at $173.60.
But the stock has the potential to hit Guggenheim Securities’ price target of $215 in 2018, which would produce gains of 23.85% from current levels.
Even with a fewer number of iPhones sold, Apple’s smartphone revenue shot up 13% year over year. That’s thanks in part to iPhone X’s price tag starting at $999.
Research firm Canalys reported that Apple sold 29 million iPhone X’s in the first quarter of 2018, and those phones were only on sale for the January month of the quarter.
Considering these figures, AAPL is not only flying under the radar right now, but it is on sale for investors.
But if you can only buy one of these three stocks, the stock we’re about to show you is the one to buy.
Top Undervalued Stocks to Buy No. 1: Alibaba Group Holding Ltd.
If Nvidia is the best stock of 2017, thenAlibaba Group Holding Ltd. (NYSE: BABA) is giving it a run for its money.
And of all the stocks on this list, BABA is trading at perhaps the greatest discount to its true value.
That’s because Alibaba is positioned to capitalize on the massive economic growth of China and the rest of Asia.
Alibaba is one of the 10 biggest companies in the world and operates primarily as an e-commerce shopping platform, like Amazon.com Inc. (Nasdaq: AMZN), as well as a technology conglomerate like Alphabet Inc. (Nasdaq: GOOGL).
In the past 12 months, BABA shares have climbed 86.3%, and it appears that there may be another major catalyst in store for this company.
Alibaba has been making a push to expand its international reach, particularly in North America. Its existing network would give existing U.S. businesses an outlet to reach 443 million online consumers.
There are already 7,000 businesses on the Alibaba network, and American-made goods sell at a premium for the site’s customers.
And based on the 50 firms covering BABA stock with an average price target of $226 and a high target of $260, BABA stock has upside of 19% and 36.8%, respectively.
On Jan. 26, BABA shares were trading as high as $205 per share, and then collapsed 15.3% to $173.70 on Feb. 8.
Currently, Alibaba’s stock trades at $190, meaning it still has room to climb 7.9% before it reaches a new all-time high. That makes BABA shares potentially the most discounted shares on this list.
*This has been a guest post by Money Morning*