33 Undervalued Stocks for Q1: Morningstar, 2024

After finishing 2023 up 26%, the U.S. stock market looks fairly valued, Morningstar investment specialist Susan Dziubinski writes in a blog post this week.

An analysis of companies in Morningstar’s coverage indicates that the U.S. stock market was trading at a price/fair value of 1.00 at the end of last year. This compares with a 16% discount to fair value at the start of 2023.

What might this portend for 2024? Dziubinski’s colleague, chief U.S. market strategist David Sekera, noted in his first-quarter 2024 stock market outlook that the rate of economic growth will slow and that stocks are nearing their highs. He added, however, that multiple undervalued areas provide relatively large margins of safety.

According to Dziubinski, Morningstar analysts look at stock market valuations in several ways. By investment style, small-value stocks are the most undervalued at present, trading 20% below Morningstar’s fair-value estimate. In contrast, large core stocks are 8% overvalued.

By sector, technology, industrials and consumer cyclicals look overvalued, while communication services is the most undervalued sector.

And by Morningstar economic moat rating, which signals a company’s competitive advantages, wide-moat stocks are overvalued by 1%, while narrow- and no-moat stocks are undervalued by 2% and 5%.

See the accompanying gallery for 33 undervalued stocks for the first quarter, according to Morningstar analysts, with individual stock data as of Dec. 28.