Here Are My Top 3 Value Stocks to Buy Now

The market is on a tear with the S&P 500 index up 16.25% year to date. Excitement surrounds technology companies as they scale up artificial intelligence (AI) and related infrastructure.

However, concerns have emerged around stock valuations. The Shiller price-to-earnings ratio, also known as the cyclically adjusted price-to-earnings (CAPE) ratio, shows the market is at its most expensive valuation since the dot-com bubble in 2000 and among the most expensive in history.

This can make it feel a little nerve-wracking to buy stocks, but there are bargains in this market if you search hard enough. Here are three companies that offer a good value that you can add to your diversified portfolio today.

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1. Citigroup

Citigroup (NYSE: C) is one of the largest banks in the U.S., but has traded at a steep discount to its peers for some time now. The bank struggled to manage its extensive global business operations. It also faced regulatory issues stemming from internal controls related to risk management and data governance, for which it was fined $400 million in 2020 and an additional $136 million last year.

The stock has been subpar with its return on common tangible equity (ROTCE) lagging behind its peers with a mid-single-digit figure. This is due to bloated operating costs resulting from its large business, slower growth in consumer and international units, as well as non-core assets that have dragged down its profitability.

CEO Jane Fraser has been on a mission to steer the bank in the right direction. After taking over the top role in 2021, Fraser has committed to improving the bank by streamlining operations and focusing on those most profitable business units.

The company wound down consumer franchises in 14 countries, reduced its workforce, and consolidated operations. In Mexico, Citigroup separated its Banamex consumer business from its institutional business, with plans to IPO the business. The moves are paying off, and its ROTCE has improved modestly, from 7.4% last year to 8.9% this year as the bank sheds its low-return assets.

Priced at 1.06 times tangible book value, Citi is valued well below JPMorgan Chase (2.99 P/TBV) and Bank of America (1.88 P/TBV). Given its improving balance sheet and streamlined business operations, I think this valuation makes it a solid value stock to consider today.

2. PayPal

It's been several years since PayPal (NASDAQ: PYPL) was a high-flying stock with a valuation to the moon. However, the past few years have been lackluster for the payments company as the stock has bounced in a range between $50 and $100 per share.

Today, PayPal is valued at just 11.3 times its projected earnings this year, making it another compelling value stock to consider adding to your portfolio. At this price, PayPal trades at a discount, similar to a bank stock, where growth is expected to be more limited over time. However, the company has implemented several growth initiatives under the leadership of CEO Alex Chriss, who took over the top role in 2023.

Chriss has brought his experience with small and medium-sized businesses from his time as an executive at Intuit, and he looks to apply this to PayPal's business model. In recent years, the company has introduced PayPal Complete Payments for small and mid-sized businesses, partnered with several e-commerce companies to enhance its checkout options, and expanded its buy-now-pay-later (BNPL) business.

More recently, PayPal has rolled out an advertising platform built on its vast payments data and has also partnered with OpenAI to build an agentic shopping tool with built-in payments. Together, they look to steer payments toward an AI-native experience, where commerce becomes more personalized, automated, and efficient.

PayPal stock has been subpar for investors in recent years; there's no way around that. However, the company continues to grow at a steady pace, and its growth initiatives provide upside to the business that I don't believe is being priced into the stock today.

3. Progressive

Progressive (NYSE: PGR), the automotive insurance company, has been a stellar investment for a long time now. Going back three decades, the company has delivered investors a total return of 10,780%, or a compound annual growth rate of 16.9%!

What makes Progressive a compelling stock is its large market share -- it has the second-largest share among auto insurers, and a stellar underwriting ability. For decades, the company has consistently delivered industry-leading profitability, as measured by its combined ratio. With its strong focus on a data-driven approach, including being an early adopter of telematics, Progressive has a proven track record of success.

That said, insurance companies experience cycles, and the current backdrop is less favorable for insurers. After a rough period in recent years amid inflation, auto insurance companies are backing off on big hikes for customers for next year. Not only that, but Progressive recently announced it would be refunding $1 billion to policyholders in Florida, because its profits exceeded statutory limits from 2023 to 2025.

Amid this backdrop, the stock trades down 17% over the past year, which I think presents investors with a good opportunity to scoop up the stock at a discount. The company continues to excel at underwriting profitable policies, and it has pricing power should inflation rear its ugly head once again. At 11.5 times earnings, Progressive trades at a lower valuation than it has in the past couple of years -- making it a solid stock to buy the dip on.

Citigroup is an advertising partner of Motley Fool Money. Courtney Carlsen has positions in PayPal and Progressive. The Motley Fool has positions in and recommends PayPal and Progressive. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2025 $75 calls on PayPal. The Motley Fool has a disclosure policy.