Finding Value in a Pricey Market: Two Stocks Trading Below Their Potential

Why Undervalued Stocks Matter Right Now

The market continues to reach record highs, driven largely by artificial intelligence enthusiasm and tech-sector momentum. Yet within this inflated landscape lies an often-overlooked opportunity: well-priced equities that can provide stability and value to any portfolio. Whether you’re a growth-focused investor seeking hedging or a value-oriented trader looking for core holdings, dirt-cheap stocks serve a critical purpose in today’s environment.

With $1,000 to deploy, consider examining Carnival Corporation (NYSE: CCL/CUK) and Target (NYSE: TGT). Both trade at compelling valuations despite strong underlying business fundamentals.

Carnival: Resilience Amid a Debt-Reduction Journey

Carnival’s stock performance tells a compelling story of recovery and caution. Over the past three years, shares have surged 167%, reflecting the cruise industry’s powerful rebound from pandemic disruptions. Yet this year’s performance—up just 2% despite strong earnings—suggests the market has already priced in much of the recovery narrative.

The disconnect becomes clear when examining the business fundamentals. Demand remains robust: more than half of 2026’s bookings were secured by the end of Q3 2025, while 2027 reservations are tracking at historical highs. The company collected a record $7.1 billion in deposits during the quarter, increasingly driven by ancillary revenues like onboard purchases rather than ticket sales alone.

More impressively, management is aggressively addressing the company’s historical weakness—debt. The balance sheet has improved dramatically, shrinking from a peak of $35 billion to $26.5 billion. Year-to-date efforts include $1 billion in debt prepayment and $11 billion in refinancing at improved terms. Credit rating agencies have noticed: Moody’s upgraded the company during Q3.

The financial strength is undeniable. Carnival generated record quarterly net income of $1.9 billion in the third quarter, demonstrating that the business model withstands inflationary pressures when properly managed. Trading at a P/E ratio below 14, the stock offers an attractive entry point in an otherwise expensive market.

Target: A Dividend Champion Navigating Transition

Target’s journey offers a contrasting narrative—a once-dominant retailer encountering headwinds, yet maintaining an exceptional track record with shareholders. The company’s struggles stem partly from macroeconomic factors (inflation pressuring discretionary spending) and partly from structural challenges (a smaller grocery footprint compared to competitors, resulting in margin compression and markdowns).

However, bright spots exist. Digital comparable sales grew 4% in Q3 2025, driven by same-day fulfillment options, even as total comparable sales declined 2%. A new CEO assuming leadership in January brings fresh perspective and is prioritizing owned-brand revitalization and store experience enhancement.

The real treasure for shareholders lies in Target’s dividend record. As a Dividend King, the company has increased its dividend payment for 54 consecutive years—a streak maintained even through the company’s current challenging period. This consistency speaks to management’s confidence in recovery and shareholder commitment.

At a P/E ratio of 10, Target represents one of the market’s cheapest equity valuations. The market’s skepticism reflects genuine concerns about the turnaround timeline, but the valuation discount may offer asymmetric risk-reward for patient investors.

Making Your $1,000 Decision

Both companies trade at valuations that stand apart from the broader market’s premium pricing. Carnival’s story centers on operational excellence combined with balance sheet rehabilitation, while Target combines dividend security with turnaround optionality. Neither stock is a consensus pick among mainstream analysts, which itself can be a contrarian signal for disciplined value investors.

The historical record suggests that identifying overlooked opportunities during periods of market exuberance can yield substantial long-term returns—but individual research and alignment with your investment thesis remain essential before committing capital.