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
