3 epic shares potentially undervalued by 44%

Finding undervalued shares is the key to successful investing. But what does this mean in practice? Letâs explore this further and take a look at three potentially cheap stocks.

Intrinsic value

Billionaire investor Warren Buffett likes to build stakes in companies whose share prices donât reflect the underlying (he calls it the âintrinsicâ) value of their businesses. This involves making an assessment of the expected future operating cash flows and then adjusting these to reflect the fact that Â£1 in a yearâs time is worth less than it is today.

This is a common approach used by analysts and helps them come up with price targets for the stocks they cover.

A banker?

Brokers’ consensus is that Barclays (LSE:BARC) is 42% undervalued at the moment (31 March). However, their wide range of estimates (450p-590p) is proof that valuing companies is more of an art than a science. Having said that, even the most pessimistic believes the bankâs shares are 18% under-priced.

Why? Well, it appears to be on a bit of a roll at the moment. Its 2025 earnings were 13% higher than in 2024. Itâs now aiming for a return on tangible equity of at least 14% in 2028. It was 11.3% in 2025. Also, via dividends and share buybacks, the bank hopes to return more than Â£15bn to shareholders over the next three years.

Threats include an economic slowdown, particularly in the UK and US. Also, falling interest rates could affect its margin.

But with a price-to-book ratio of less than one and the second lowest price-to-earnings (P/E) ratio of the FTSE 100âs five banks, I think Barclays looks pretty cheap at the moment and could be considered by value investors.

Uncertain times

Hikma Pharmaceuticals‘ (LSE:HIK) shares tanked in February after the drugs maker withdrew its medium-term guidance and downgraded its earnings forecast for 2026.

The groupâs injectables business is currently struggling. Itâs facing increased competition for some of its higher-value products. And tariffs on its imports into the US have been an issue.

However, I’m confident that its business will recover. Itâs investing heavily and has 118 products in its pipeline. Whatâs more, the stockâs P/E ratioâs now at a five-year low. Also, it offers an above-average dividend (no guarantees). Further, analysts reckon the stockâs 48% undervalued.

But this is a turnaround story. Its share price is likely to be a bit of a slow burner. However, I still think itâs worth considering.

Cheers!

Diageoâs (LSE:DGE) also seeking to recapture former glories. Itâs battling industry-wide trends of people drinking less and a move towards more expensive labels.

But with a reputation for cutting out the fat and streamlining businesses, I reckon the groupâs new boss, Sir Dave Lewis, is just whatâs needed. And he has some solid foundations on which to build.

The group owns some of the biggest brands in the business, including Guinness and Smirnoff. It also covers all price points in its key markets. Despite its troubles, it remains the worldâs number-one for spirits.

Analysts have a target thatâs 43% higher than todayâs share price. Remarkably, Diageoâs shares are now changing hands close to a 14-year low. On balance, I think it remains one for patient investors to consider.

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James Beard has positions in Barclays Plc. The Motley Fool UK has recommended Barclays Plc, Diageo Plc, and Hikma Pharmaceuticals Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.