An analyst has the following information about stocks 1, 2 and 3:

Stock 1 has a beta of -0.40 and an expected return of 1.2%.

Stock 2 has a beta of 1.20 and an expected return of 12%.

Stock 3 has a beta of 1.50 and an expected return of 13%

If the risk-free rate is 4% and the market risk premium is 8%, which stocks are undervalued in the market? Show how you arrived at your answer