Nasdaq 100 Bargains: 2 Undervalued Stocks to Watch

While the Dogs of the Dow strategy—buying the highest-yielding, often worst-performing stocks in the Dow Jones Industrial Average—has gained recognition among value investors, a similar approach can be applied to the Nasdaq 100 through the Invesco QQQ Trust (QQQ). This growth-heavy index, while light on dividend yields, consistently produces winners and losers each year. The current bull market’s extended run has left value-conscious investors searching for opportunities among the index’s most unloved names, particularly those that might be positioned for turnaround catalysts or multiple expansion.

However, simply buying laggards isn’t an effective strategy in itself, as underperformers can continue declining for years if structural issues persist or management proves unable to overcome challenges. The key lies in selective analysis of individual names from the bottom performers, identifying those with the potential for recovery despite current headwinds. This approach becomes particularly relevant as market valuations appear stretched, making traditional growth investments less attractive.

Lululemon Athletica Inc. (LULU) has experienced a dramatic fall from grace, currently standing as the second-worst performer in the Nasdaq 100 with shares down approximately 65% from their peak. The apparel sector presents inherent challenges for investors, particularly for established brands facing increased competition and consumer resistance to premium pricing. Bernstein’s recent downgrade highlighted concerning trends including price markdowns, worsening traffic patterns, and a lack of clear catalysts for improvement heading into 2026.

The competitive landscape has intensified with rivals like Alo gaining traction, while consumers increasingly demand more value for their money. Founder Chip Wilson’s acknowledgment that the brand is ‘losing its soul’ underscores the fundamental challenges facing the company. However, with the stock now trading at just 12.3 times trailing price-to-earnings, expectations have been reset to remarkably low levels. This valuation, combined with potential board involvement and strategic repositioning, could provide the catalyst needed for a meaningful recovery.

Adobe Inc. (ADBE) represents another significant underperformer in the Nasdaq 100, down nearly 19% year-to-date and approximately 46% from its peak levels. The primary driver behind this decline stems from legitimate concerns that artificial intelligence represents a net negative for the creative software giant. The emergence of AI-first platforms and tools like Nano Banana threatens Adobe’s longstanding market position, raising questions about the durability of its competitive moat.

Mizuho analysts have warned that AI could cause a ‘severe negative impact’ on Adobe’s business model, creating understandable hesitation among investors. Despite these valid concerns, the same analysts maintain a $410 price target on ADBE stock, suggesting substantial upside from current levels. This apparent contradiction highlights the complex calculus facing value investors: while AI disruption represents a real threat, much of the negative sentiment may already be priced into the stock.

Adobe’s response through Firefly, Sensei, and agentic AI innovations showcased at the Adobe Summit demonstrates the company’s recognition of the competitive landscape. The critical question remains whether these developments are sufficiently transformative to justify renewed investor confidence. Simply incorporating AI into existing products may not be enough—Adobe must demonstrate superior execution to maintain its leadership position in an increasingly crowded field.

Both Lululemon and Adobe present intriguing cases for value investors willing to look beyond current headwinds. Their significant declines from peak valuations—65% and 46% respectively—contrast sharply with the Nasdaq 100’s overall strong performance, creating potential dislocation opportunities. The key differentiator between permanent impairment and temporary setback lies in each company’s ability to execute strategic pivots and adapt to changing market dynamics.

For Lululemon, the path to recovery involves addressing brand perception issues, managing increased competition, and restoring growth trajectories in a challenging consumer environment. Adobe’s challenge revolves around successfully navigating the AI revolution while protecting its core software business. In both cases, current valuations suggest that much of the negative news may already be reflected in share prices, setting the stage for potential upside surprises if management can deliver on turnaround initiatives.

While neither investment comes without significant risk, the combination of depressed valuations, strong brand foundations, and potential catalysts makes these Nasdaq 100 underperformers worthy of consideration for investors seeking value in a market where bargains are increasingly scarce. As with any contrarian investment, patience and careful monitoring of execution will be essential to realizing potential returns.