33 Stocks That Are Cheap Now: Morningstar

Stocks soared in January, gave back some of their gains in February, and experienced significant volatility in March on the heels of the banking crisis, Susan Dziubinski, a Morningstar investment specialist, wrote in a recent blog post.

All in all, the U.S. stock market finished the first quarter up 7.4%, as measured by the Morningstar U.S. Market Index.

At the start of the second quarter, stocks look undervalued according to the firm’s metrics, Dziubinski said. The median stock in Morningstar’s North American coverage was trading at about a 10% discount to the fair value estimate at the end of the first quarter.

“The markets are close to the top of their trading range, and our near-term market forecast is that it will need to see a turnaround in leading economic indicators to break through the top of this range and rally upward to where we see fair value,” Morningstar’s chief U.S. market strategist Dave Sekera observed in his stock market outlook at the end of the first quarter.

Dziubinski noted that stocks look undervalued almost across the board. Small-value stocks are the most undervalued stocks right at present, trading 47% below Morningstar’s fair value estimate, while large-cap core stocks are only about 4% undervalued.

Communication services and real estate are the most undervalued sectors today, trading 30% and 22% below fair values, respectively. Consumer defensive stocks, meanwhile, are about fairly valued.

Stocks are also undervalued by Morningstar’s Economic Moat Rating, which is indicative of a company’s competitive advantage. Wide-moat stocks are underpriced by 12%, and narrow-moat ones by 11%. No-moat stocks are 22% undervalued.

See the gallery for Morningstar’s top underpriced stock picks for the second quarter of 2023.