Morningstar: These are the 33 top undervalued stocks to buy now that the market is finally cheap after last month’s sell-off

• The market sold off in September, bringing stocks — and their price tags — down.
• Now’s a good time to buy undervalued stocks, according to Morningstar’s David Sekara.
• Morningstar analysts outlined their 33 favorite cheap stocks to buy now.

It’s never a good feeling to see the market fall and the value of your investments fall with it — but it can mean a better buying opportunity.

Morningstar’s chief US equity strategist David Sekara believes the stock market is undervalued for the first time in a long time, owing to a 4.5% drop since the end of July.

“When we did our calculations a week and a half ago, we noted that the market was trading at a price to fair value of 0.92,” he said in a recent Morningstar conversation. “That represents an 8% discount to our fair value estimates.”

In fact, Sekara believes that the market has gotten even cheaper since he made those calculations, and that it now trades at a 10% discount to fair value.

Here’s why he believes the sell-off is occurring, where the best opportunities are, and which stocks appear to be the cheapest in today’s market.

Investor apprehension is creating opportunities

Sekara outlined three reasons for the recent market downturn in his analysis: long-term interest rates sapping company profits, rising energy prices hurting consumers, and the Fed’s higher-for-longer monetary policy. However, according to Sekara, the latter isn’t as serious as people believe.

“We actually take a different point of view,” he wrote. “We think that the Federal Reserve not only are they going to not be raising rates, we think their next move is actually going to be to start cutting rates next year.”

Sekara also noted that growth stocks bore the brunt of the recent sell-off, which seems reasonable given that they did the majority of the heavy lifting in markets, with big tech propelling stocks higher than anyone expected.

Sekara was among those who had to try to keep up with the year’s surprising moves in growth stocks. He started 2023 overweight growth, then reduced his call to market-weight in the middle of the year after the AI hype sent growth stocks skyrocketing, and finally declared himself underweight growth last quarter.

He’s back on the bandwagon now that growth stocks are cheaper than they’ve been in months.

“So, again, with as much as growth has moved back down, we do think that now is a good time to move back to that market weight,” he wrote in an email. “And then, in terms of capitalization, large-cap stocks are still fully valued, trading slightly above the market at this time.” And, in our opinion, mid-cap and small-cap stocks are still more appealing.”

However, Sekara warned that the magnificent seven trade has most likely peaked, and gains for a group of stocks that have risen so quickly this year will be more difficult to come by. Instead, he predicted that “the market will really broaden out, start moving into some of the other areas that have lagged thus far this year, specifically the value category, which we still believe is the most attractive area on a relative value basis.”

Sekara stated that the energy industry has reaped enormous benefits from the rise in oil prices. As a result, energy stocks appear to be overvalued at the moment, while the rest of the market appears to be undervalued. He pointed out that sectors closely related to interest rates, such as utilities and real estate, appear to be particularly undervalued right now.

33 undervalued investments you should buy right now

Although the market has recently regained some of its momentum, stocks have paused their upward trend long enough to provide investors with an opportunity to buy while the buying is good. The only question is which stocks offer the best chances.

Editor Susan Dziubinski polled Morningstar analysts for their top undervalued stocks to buy this quarter in a separate note published earlier this month.

The outcomes are listed below, along with each company’s ticker, most recent closing price, price to fair value ratio, fair value uncertainty, and economic moat rating.

1. Albemarle

Ticker: ALB

Last Closing Price: $162.16

Price/Fair Value: 0.49

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

2. Corteva

Ticker: CTVA

Last Closing Price: $50.53

Price/Fair Value: 0.73

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

3. International Flavors & Fragrances

Ticker: IFF

Last Closing Price: $65.78

Price/Fair Value: 0.52

Fair Value Uncertainty: High

Economic Moat Rating: Wide

Source: Morningstar

4. Pinterest

Ticker: PINS

Last Closing Price: $28.62

Price/Fair Value: 0.75

Fair Value Uncertainty: Very High

Economic Moat Rating: Narrow

Source: Morningstar

5. Verizon

Ticker: VZ

Last Closing Price: $31.75

Price/Fair Value: 0.60

Fair Value Uncertainty: Medium

Economic Moat Rating: Narrow

Source: Morningstar

6. Walt Disney

Ticker: DIS

Last Closing Price: $85.00

Price/Fair Value: 0.56

Fair Value Uncertainty: High

Economic Moat Rating: Wide

Source: Morningstar

7. Nordstrom

Ticker: JWN

Last Closing Price: $14.36

Price/Fair Value: 0.37

Fair Value Uncertainty: Very High

Economic Moat Rating: Narrow

Source: Morningstar

8. Hanesbrands

Ticker: HBI

Last Closing Price: $3.93

Price/Fair Value: 0.20

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

9. VF

Ticker: VFC

Last Closing Price: $16.00

Price/Fair Value: 0.29

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

10. Anheuser-Busch Inbev

Ticker: BUD

Last Closing Price: $53.65

Price/Fair Value: 0.61

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

11. Kraft Heinz

Ticker: KHC

Last Closing Price: $32.47

Price/Fair Value: 0.63

Fair Value Uncertainty: Medium

Economic Moat Rating: None

Source: Morningstar

12. Estee Lauder

Ticker: EL

Last Closing Price: $140.66

Price/Fair Value: 0.58

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

13. Devon Energy

Ticker: DVN

Last Closing Price: $46.08

Price/Fair Value: 0.78

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

14. Equitrans Midstream

Ticker: ETRN

Last Closing Price: $9.41

Price/Fair Value: 0.62

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

15. TC Energy

Ticker: TRP

Last Closing Price: $34.54

Price/Fair Value: 0.73

Fair Value Uncertainty: Medium

Economic Moat Rating: Narrow

Source: Morningstar

16. Charles Schwab

Ticker: SCHW

Last Closing Price: $51.78

Price/Fair Value: 0.69

Fair Value Uncertainty: High

Economic Moat Rating: Wide

Source: Morningstar

17. Paypal Holdings

Ticker: PYPL

Last Closing Price: $57.72

Price/Fair Value: 0.43

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

18. Wells Fargo

Ticker: WFC

Last Closing Price: $39.82

Price/Fair Value: 0.67

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

19. Illumina

Ticker: ILMN

Last Closing Price: $138.79

Price/Fair Value: 0.51

Fair Value Uncertainty: High

Economic Moat Rating: Narrow

Source: Morningstar

20. Moderna Therapeutics

Ticker: MRNA

Last Closing Price: $104.43

Price/Fair Value: 0.39

Fair Value Uncertainty: Very High

Economic Moat Rating: None

Source: Morningstar

21. Zimmer Biomet

Ticker: ZBH

Last Closing Price: $112.16

Price/Fair Value: 0.64

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

22. Johnson Controls

Ticker: JCI

Last Closing Price: $52.62

Price/Fair Value: 0.74

Fair Value Uncertainty: Medium

Economic Moat Rating: Narrow

Source: Morningstar

23. ManpowerGroup

Ticker: MAN

Last Closing Price: $73.61

Price/Fair Value: 0.67

Fair Value Uncertainty: High

Economic Moat Rating: None

Source: Morningstar

24. Norfolk Southern

Ticker: NSC

Last Closing Price: $200.84

Price/Fair Value: 0.82

Fair Value Uncertainty: Medium

Economic Moat Rating: Wide

Source: Morningstar

25. Federal Realty Investment Trust

Ticker: FRT

Last Closing Price: $89.23

Price/Fair Value: 0.64

Fair Value Uncertainty: Medium

Economic Moat Rating: None

Source: Morningstar

26. Park Hotels & Resorts

Ticker: PK

Last Closing Price: $12.09

Price/Fair Value: 0.46

Fair Value Uncertainty: High

Economic Moat Rating: None

Source: Morningstar

27. Ventas

Ticker: VTR

Last Closing Price: $41.95

Price/Fair Value: 0.59

Fair Value Uncertainty: Medium

Economic Moat Rating: None

Source: Morningstar

28. Cognizant Technology Solutions

Ticker: CTSH

Last Closing Price: $67.86

Price/Fair Value: 0.72

Fair Value Uncertainty: Medium

Economic Moat Rating: Narrow

Source: Morningstar

29. Snowflake

Ticker: SNOW

Last Closing Price: $163.17

Price/Fair Value: 0.66

Fair Value Uncertainty: Very High

Economic Moat Rating: None

Source: Morningstar

30. Teradyne

Ticker: TER

Last Closing Price: $99.56

Price/Fair Value: 0.64

Fair Value Uncertainty: High

Economic Moat Rating: Wide

Source: Morningstar

31. Duke Energy

Ticker: DUK

Last Closing Price: $89.97

Price/Fair Value: 0.84

Fair Value Uncertainty: Low

Economic Moat Rating: Narrow

Source: Morningstar

32. Entergy

Ticker: ETR

Last Closing Price: $94.84

Price/Fair Value: 0.77

Fair Value Uncertainty: Low

Economic Moat Rating: Narrow

Source: Morningstar

33. NiSource

Ticker: NI

Last Closing Price: $26.06

Price/Fair Value: 0.75

Fair Value Uncertainty: Low

Economic Moat Rating: Narrow

Source: Morningstar