8 Stocks That Are Cheap Now: Morningstar

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Stock prices broadly have bounced back from their worst bear market levels, but a few names have continued to slide in recent weeks, hitting levels that Morningstar's stock analysts say are attractive, Jakir Hossain, an associate data journalist at the firm, wrote in a blog post this week. At the end of November, the Morningstar US Market Index was down 18.1% for the year but up 10.5% from its mid-October lows. With that rebound, the market is undervalued by 11%, compared with 23% on Sept. 30. A year ago, stocks were overvalued by 2%. As of Nov. 25, Morningstar analysts considered 428 stocks with a rating of either 4 or 5 stars undervalued, out of the 841 U.S.-listed stocks they cover, Hossain wrote. That is down from 570 stocks analysts deemed undervalued at the end of September. By comparison, only 181 stocks were undervalued at the end of the 2021 third quarter. Hossain said the real change in recent weeks is in the number of 5-star stocks, which analysts consider deeply discounted. Only 134 stocks were at a deep enough discount to their Morningstar fair value estimate to warrant 5 stars as of Nov. 25, slightly more than half of the 211 stocks with that rating at the end of the third quarter.

New Opportunities

Although the number of undervalued stocks has declined in recent weeks, some new ones have fallen into undervalued territory. To highlight these new undervalued opportunities for long-term investors, Morningstar ran its universe of U.S.-listed stocks through a screen that looked for stocks that were overvalued or fairly valued as of Sept. 30, but were undervalued as of Nov. 25. The results show that while no stocks reached 5 stars, 12 stocks were rated at 4 stars, and all of them were 3-star stocks on Sept. 30. Analysts then filtered that list for stocks that had a discount to their fair value estimate of 10% or more. This left eight stocks that recently became undervalued. Analysts also looked within the list for opportunities with the greatest margin of safety by scanning for those that had either a narrow or wide Morningstar Economic Moat Rating, indicating that they have a durable competitive advantage over their peers. Six of the stocks met these criteria. See the gallery for Morningstar's eight newly undervalued stocks.