Is State Street Corp. (NYSE:STT) the Most Undervalued Quality Stock to Buy Now?

We recently published a list of the 11 Most Undervalued Quality Stocks to Buy Now. In this article, we are going to take a look at where State Street Corp. (NYSE:STT) stands against other undervalued quality stocks to buy now.

On February 24, Kayne Anderson Rudnick chief market strategist Julie Biel joined ‘The Exchange’ on CNBC to discuss her thoughts on how good quality companies can ride out turbulence in the market. Just like Warren Buffett and Charlie Munger, Biel also suggests inaction as an investment principle and believes that holding high-quality companies can help investors deal with market volatility. She emphasized conviction in investing instead of impulsive decision-making. Biel also noted the general resilience of the US economy, which mainly comes from a robust jobs market as it fuels the consumer-driven economy. She also expressed unease over the limited tools available to address a potential recession that could come from high levels of deficit spending. She thinks inefficient businesses should be allowed to fail while protecting employees during economic cycles.

Biel addressed small-cap stocks and explained that they struggle due to their higher leverage and sensitivity to prolonged higher interest rates. They often include significant exposure to real estate and banking sectors and have a high proportion of non-earning companies. She then emphasized that even if one were to invest in small caps, the ideal approach would be to look at high-quality small-cap companies that can yield strong results. Biel’s stock picks are quality companies that focus on tangible and physical solutions instead of those with foundations in hyped technologies like AI. While she acknowledged AI’s potential, she argued that it’s becoming standard and can no longer be categorized as a differentiator.

Our Methodology

We sifted through the Vanguard U.S. Quality Factor ETF holdings to compile a list of the top stocks that had a forward P/E ratio under 15 as of April 14. We then selected the 11 undervalued stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).

State Street Corp. (NYSE:STT)

Forward P/E Ratio as of April 14: 8.22

Number of Hedge Fund Holders: 61

State Street Corp. (NYSE:STT) provides financial products and services to institutional investors worldwide. It offers investment servicing products and services, such as custody, accounting & fund administration services, recordkeeping, client reporting, investor services operations outsourcing, financial data management, and other similar services and products.

The company’s Net Interest Income (NII) is a primary driver of its overall growth. The company expects deposit levels to remain between $230 and $240 billion as it enters the first quarter of 2025. While noninterest-bearing deposits rose slightly in Q4 2024, it’s down 12% when compared to the year-ago period. Loan growth also significantly fuels NII and reached 14% in 2024. This growth relies on lending to private market clients, which make up over two-thirds of the company’s total loans.

State Street Corp. (NYSE:STT) is now focused on growing its fee-based business. Its servicing fee sales have risen by 45% since 2022, and 250% since 2020, which came from restructuring the sales team and realigning incentives. The company expects to continue to reach its 2025 target of $350 to $400 million in servicing fee sales.

Overall, STT ranks 7th on our list of the most undervalued quality stocks to buy now. While we acknowledge the growth potential of STT, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. There is an AI stock that went up since the beginning of 2025, while popular AI stocks lost around 25%. If you are looking for an AI stock that is more promising than STT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.

Disclosure: None. This article is originally published at Insider Monkey.