Undervalued Stocks in 2025: Strategic Picks for Long-Term Growth Amid Market Rotation

The investment landscape in 2025 has witnessed a dramatic shift, with small-cap and value stocks reclaiming their place in the spotlight. After years of dominance by mega-cap growth stocks, a combination of Federal Reserve easing and macroeconomic tailwinds has triggered a "Great Rebalancing," as described by market analysts. This rotation presents a unique opportunity for value investors to capitalize on undervalued equities with strong fundamentals and compelling upside potential. Below, we analyze three standout stocks—Global-E Online, Ramaco Resources, and StoneCo—through the lens of discounted cash flow (DCF) valuations, earnings growth, and sector dynamics.

The Case for Small-Cap and Value Outperformance

According to a report by Financial Content, the Morningstar US Small Cap Index surged by 4.58% in August 2025, while the S&P SmallCap 600 and Russell 2000 rose by 7.06% and 7.3%, respectively [1]. This outperformance was fueled by expectations of Federal Reserve rate cuts, with Fed Chair Powell’s dovish comments in September 2025 signaling a likely reduction in borrowing costs [2]. Small-cap stocks, trading at a 17% discount to fair value as of July 2025, are now projected to deliver 22% earnings growth in 2025 and 42% in 2026 [1]. Analysts attribute this momentum to a broader diversification away from the "Magnificent Seven" tech giants, which had skewed market performance for years [3].

The Fed’s pivot has also benefited sectors like regional banking, industrials, and energy, where smaller companies with strong cash flows and asset bases are gaining traction [1]. This environment underscores the importance of identifying undervalued equities with robust earnings trajectories and sector-specific advantages.

Global-E Online (GLBE): A Turnaround Story with Shareholder-Focused Strategy

Global-E Online, a digital commerce platform, has emerged as a compelling value play. Trading at $35.78 as of September 2025, the stock is significantly undervalued relative to its DCF-derived fair value of $51.99—a 31.2% discount [1]. The company’s Q2 2025 net income of $10.49 million marked a sharp turnaround from a year-ago loss, driven by cost optimization and revenue diversification [1].

What sets Global-E apart is its aggressive $200 million share repurchase program, funded by cash on hand and future operating cash flows. This move signals management’s confidence in the company’s intrinsic value and aligns with the principles of value investing. As noted by Yahoo Finance, the stock’s earnings growth is expected to outpace market averages, making it a strategic pick for long-term investors [1].

Ramaco Resources (METC): Leveraging Commodity Tailwinds and Capital Discipline

Ramaco Resources, a coal producer, trades at $28.18, well below its DCF fair value of $54.30 (48.1% discount) [1]. While the company has faced recent losses, its production growth—marked by quarterly record outputs—positions it to achieve profitability within three years [1]. The energy sector’s resurgence, driven by inflation-linked commodity prices and renewed demand for thermal coal, adds a layer of macroeconomic support.

However, Ramaco’s investment profile is not without risks. Shareholder dilution and price volatility remain concerns, particularly in a sector sensitive to regulatory and environmental shifts. That said, the company’s efforts to manage its capital structure through equity offerings and dividend announcements demonstrate a commitment to long-term value creation [1]. For investors with a medium-term horizon, Ramaco represents a high-conviction play in a sector poised for cyclical recovery.

StoneCo (STNE): Digital Payments with Profitability on the Horizon

StoneCo, a Brazilian fintech, is trading at $17.30, a 42.9% discount to its DCF fair value of $30.30 [1]. The company recently raised its 2025 earnings guidance, projecting gross profit growth of over 14.5% year-over-year and 32% earnings per share (EPS) growth [1]. These metrics highlight StoneCo’s ability to scale its digital payment infrastructure in Latin America, a region with untapped financial inclusion potential.

Despite slower revenue growth and debt concerns relative to operating cash flow, StoneCo’s profitability forecast remains robust. Analysts anticipate annual profit growth above market averages within three years, supported by expanding merchant partnerships and regulatory tailwinds in Brazil [1]. For value investors, the stock’s attractive valuation and sector-specific growth drivers make it a compelling addition to a diversified portfolio.

Strategic Implications for Value Investors

The current market rotation toward small-cap and value stocks, coupled with Fed easing, creates an environment where undervalued equities can thrive. Global-E Online, Ramaco Resources, and StoneCo exemplify this trend, offering a mix of strong DCF valuations, earnings growth potential, and sector-specific advantages. While each stock carries unique risks—such as regulatory headwinds for Ramaco or debt management challenges for StoneCo—their current discounts to fair value and improving fundamentals justify a long-term investment thesis.

As the Fed continues to cut rates and small-cap earnings momentum builds, these stocks are well-positioned to outperform in a more balanced market. For disciplined value investors, the key lies in identifying companies with durable competitive advantages, strong cash flows, and management teams focused on shareholder value.

Source:
[1] The Great Rebalancing: Small-Cap and Value Stocks Emerge [https://markets.financialcontent.com/wral/article/marketminute-2025-9-8-the-great-rebalancing-small-cap-and-value-stocks-emerge-as-market-leaders-amidst-fed-pivot-hopes]
[2] September 2025 Stock Market Outlook: Will the Small-Cap [https://www.morningstar.com/markets/stock-market-outlook-where-we-see-investing-opportunities-september]
[3] Three Stocks Estimated To Be Undervalued In September 2025 [https://finance.yahoo.com/news/three-stocks-estimated-undervalued-september-173756612.html]