33 Undervalued Stocks for Q4: Morningstar

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The U.S. stock market’s bounce over the summer didn’t last long, and stocks finished the third quarter down more than 4%, as measured by the Morningstar US Market Index.

Stubbornly high inflation, rising interest rates and talk of a possible economic recession continued to rattle markets during third quarter. The U.S. stock market was down nearly 25% for the year to date through September.

“Heading into the fourth quarter, stocks look downright cheap according to our metrics,” Susan Dziubinski, director of content at Morningstar.com, wrote in a recent blog post. “The median stock in Morningstar’s North American coverage traded at more than a 20% discount to our fair value estimate.”

Dziubinski cited her colleague, chief U.S. market strategist Dave Sekera, who wrote in his latest stock market outlook, “It appears to us that the market has overcorrected to the downside.” Dziubinski noted that stocks appear undervalued almost across the board viewed through several different lenses.

By investment style, small-value stocks are the most undervalued, trading 47% below Morningstar’s fair value estimate, with large-cap core stocks only about 13% undervalued. By sector, communication services and consumer cyclicals are the two most undervalued, trading 43% and 25% below fair values. Defensive stocks in the utilities, health care and consumer defensive sectors are about fairly valued.

By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide-moat stocks are undervalued by 27% more than either narrow-moat or no-moat stocks.

See the gallery for 33 stocks Morningstar analysts have found to be undervalued going into the fourth quarter, by sector.