The S&P 500 Index (SP: .INX) hit a new all-time high last night, and the ASX 200 isn't far off its recent record.
Investors looking for value in an expensive market often turn to stocks that have declined from their peak.
Indeed, investors have become accustomed to look for buy the dip opportunities.
A recent example is CSL Ltd (ASX: CSL). Prior to its FY25 result, the healthcare giant was already favoured among ASX inventors as an attractively valued stock.
However, since releasing its FY25 result, which triggered the sharpest one day share price decline since the company listed in 1999, investor interest in the company has skyrocketed. While brokers have cut their price targets, the majority of experts maintain that the stock is undervalued.
Is buying the dip the only strategy?
Buying the dip is likely to have worked out very well so far for investors who adopted this investment strategy in April.
Since 7 April, the S&P/ASX 200 Index (ASX: XJO) has rallied more than 20%.
While the tariff-induced sell-off now seems like a distant memory, investors who took advantage of the sell-off are likely sitting much wealthier today.
However, buying the dip isn't the only strategy that investors can adopt to find undervalued opportunities.
Just because an ASX 200 stock has momentum behind it, doesn't mean it's not attractively valued.
Macquarie upgrades Downer EDI
One ASX 200 stock with momentum behind it and potential to continue delivering market-beating returns is Downer EDI (ASX: DOW).
Downer EDI provides integrated infrastructure and facilities services across Australia and New Zealand. This includes, the design, construction, and maintenance of roads, rail, utilities, and other essential services for both public and private sectors.
It is dual listed on the Australian Securities Exchange (ASX) and the New Zealand Stock Exchange (NZX).
This week, Macquarie Group Ltd (ASX: MQG) upgraded its rating from neutral to outperform. That comes, despite the stock already rising 30% for the year to date.
The broker has placed a price target of $7.90 on the stock. Given that shares are trading for $6.90 at the time of writing, that suggests 15% upside from here over the next 12 months.
That includes both dividends and capital gains. Downer EDI shares currently have a dividend yield of around 3.5%.
A 15% return is well ahead of the long-time average of the Australian share market. According to the recently released Vanguard Index Chart 2025, Australian shares have averaged a 9.3% return over the past 30 years.
Behind Macquarie's view, the broker said Downer EDI had over-delivered on its cost-out programme, with $213 million achieved. Macquarie also sees opportunity for further margin improvement ahead.
Additionally, the broker also said:
Medium term, DOW is focused on driving (profitable) revenue growth and should benefit from growth across power/transmission, social housing, defence, road maint, rail and a gradually recovering NZ market.
Macquarie expects Downer EDI to grow earnings at a CAGR of 9% over the next 3 years. The broker also believes the company's strong balance sheet will continue to support a 4% dividend yield and 5% buyback.
