By most accounts, the stock market has had a very good 2024. The S&P 500 has provided a total return so far of 20.6%. That significantly outpaces the 11.7% average over the past 30 years. It beats out the returns in 19 of those 30 years, but there are still two months and a presidential election to come.

Although just because the market is going up doesn’t mean every stock is having a great year. Over 300 S&P 500 stocks are underperforming the index; the top names are disproportionately driving its returns. As one might expect, those top names are companies that have something to do directly or indirectly with the rise of AI and data centers. Nuclear power companies, chip designers, and hyperscalers come to mind.

Below are three stocks that have missed out on the rally, are trading at a favorable valuation, and have the ability to recover.

Lam Research Is Projected to Come Out of Its Sales Slump

Lam Research (NASDAQ: LRCX) is one chip stock that hasn’t ridden the success of its industry in 2024. Shares have provided a total return of just 4%, while the PHLX Semiconductor Index has returned nearly 24%. The company is an equipment provider to chip fabrication firms.

Its main U.S. competitor is Applied Materials (NASDAQ: AMAT), which has returned 23% this year. An inventory glut in the chip industry has hurt equipment firms like Lam. Its trailing twelve months sales fell 14% last quarter.

Applied Materials has been able to weather this storm better, with sales slightly positive. However, going forward, analysts expect Lam to see higher revenue and growth in earnings. Analysts expect the company’s revenue to rise by 16% next year, compared to just 2% for AMAT. Earnings per share growth is expected to be 18% versus 6% for AMAT.

Compared to the U.S. technology sector, Lam’s forward price-to-earnings ratio is below the middle of the pack. Additionally, Wall Street analysts see solid potential in the stock. The company’s average price target implies an upside of 24%.

Adobe’s GenAI Investments May Take Time to Pay Off

Adobe (NASDAQ: ADBE) is another technology firm that the market hasn’t liked in 2024. The total return of the company is nearly -16% this year. The company has a suite of software for business and creative use. It includes Photoshop, Premiere Pro, and Adobe Acrobat. Adobe is a leader in this space. It is investing heavily in GenAI via its Firefly tool, which it integrates into its software. It is working to stay on top by integrating these features to avoid losing market share to legacy and startup competitors.

The company has been consistently beating analyst estimates on both revenue and adjusted earnings per share (EPS). But weak forward-looking guidance has overall hurt the share price. Additionally, the company has continued to increase its margins, but the market still isn’t giving it much credit. The company’s forward P/E ratio is right in the middle when it comes to U.S. technology firms, yet its margins are sky-high. Its operating margin beats out 94% of U.S. tech companies.

There is worry about Adobe's ability to compete with other firms that offer similar products at a lower price. But it is still in the driver's seat of its market. As long as it continues investing to stay ahead of the curve, the results should come. I believe we are still in the early innings of people adopting AI, and the company’s offering should help increase revenue growth more in the future. The average analyst's price target currently implies a 22% upside in the stock.

Wall Street Sees the Most Upside in Merck Among Big Pharma

Last is Merck & Co (NYSE: MRK). Merck has provided a total return of just 3% this year, well below the 12% median among its peer group of the 10 largest pharma firms. That’s despite the fact that its net income has risen faster than most of those firms.

Its 13x forward P/E ratio is trading below the median of those firms as well and is nearing historically low levels. At the same time, the company’s operating margin is near the top of the pack.

The market isn’t rewarding Merck largely because its biggest drugs aren’t going quickly, making its strengths go unnoticed. However, Wall Street sees the most upside in Merck stock compared to its peers, with its average price target implying a 26% upside. Cantor Fitzgerald is particularly bullish. It just released its reiterated $155 price target, which indicates shares could rise by 40%.