33 Undervalued Stocks

The US stock market finished the second quarter of 2024 up more than 3%, as measured by the Morningstar US Market Index.

Heading into the third quarter, stocks look fairly valued, according to our metrics. Looking at a composite of the stocks Morningstar covers, the US stock market is trading at a price/fair value of 1.03 at the end of the second quarter.

With the market trading at a slight premium to our fair value estimate, what might that mean for the remainder of 2024? “Anything related to artificial intelligence continued to surge in the second quarter,” writes Morningstar chief US market strategist David Sekera in his third-quarter 2024 stock market outlook. “While a rising tide can lift overvalued AI stocks even further into overvalued territory in the short term, in the future, we think long-term investors will be better off paring down positions in growth and core stocks, which are becoming overextended, and reinvesting those proceeds into value stocks, which trade at an attractive margin of safety.”

Here’s how stock market valuations look through a few different lenses:

• By investment style, small-value stocks are the most undervalued stocks right now, trading 28% below our fair value estimate. Meanwhile, large-core and large-growth stocks are overvalued.
• By sector, industrials, technology, and consumer defensive stocks look most overvalued. The most undervalued sectors heading into the third quarter are real estate, energy, and basic materials.
• By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide-moat stocks are overvalued by 6%, while narrow- and no-moat stocks are about fairly valued.

33 Undervalued Stocks to Buy for Q3 2024

Here’s the list of Morningstar’s top underpriced stock picks for the third quarter of 2024.

1. Adobe ADBE
2. Albemarle ALB
3. APA APA
4. Baxter International BAX
5. Comcast CMCSA
6. Crown Castle CCI
7. Duke Energy DUK
8. Entergy ETR
9. Estee Lauder EL
10. Exxon Mobil XOM
11. Fortinet FTNT
12. Hanesbrands HBI
13. Honeywell International HON
14. Humana HUM
15. Huntington Ingalls Industries HII
16. International Flavors & Fragrances IFF
17. Kilroy Realty KRC
18. Kraft Heinz KHC
19. MarketAxess Holdings MKTX
20. Moderna MRNA
21. NiSource NI
22. Nutrien NTR
23. PayPal Holdings PYPL
24. Polaris PII
25. Realty Income O
26. Schlumberger SLB
27. STMicroelectronics STM
28. United Parcel Service UPS
29. U.S. Bancorp USB
30. VF VFC
31. Ventas VTR
32. Warner Bros. Discovery WBD
33. WK Kellogg KLG

Here’s a brief summary of how valuations stack up across sectors, along with some key Morningstar metrics about each undervalued stock to buy. Individual stock data is as of June 28, 2024.

Undervalued Basic-Materials Stocks

Basic-materials stocks underperformed the broad market during the second quarter of 2024 and are slightly undervalued heading into the third quarter. Morningstar strategist Seth Goldstein reports that 60% of the stocks that Morningstar covers in the sector are trading with Morningstar Ratings of 4 or 5 stars. While building-materials stocks look overvalued, more than half of the stocks in the agriculture, chemicals, and metals and mining industries are underpriced.

Underpriced Communications-Services Stocks

The communication-services sector outperformed the broad market during the second quarter. The sector enters the third quarter of 2024 trading 1% above our fair value estimate. There is plenty of opportunity in the sector, observes Morningstar sector director Mike Hodel. In particular, more than three fourths of the stocks we cover in the telecom subsector are trading in 4- and 5-star range.

Cheap Consumer Cyclical Stocks Today

Consumer cyclical stocks underperformed the broader market during the second quarter. The sector enters the third quarter of 2024 trading 2% below our fair value estimate. Less than half of the stocks that we cover in the sector are trading in 4- and 5-star range, says Morningstar sector director Erin Lash. The auto, apparel, and travel and restaurant industries hold the most opportunities from a valuation perspective.

Undervalued Stocks in the Consumer Defensive Sector

Consumer defensive stocks lagged the market during the second quarter. The sector looks 8% overvalued heading into the third quarter of 2024. Yet there are opportunities to be found, says Morningstar’s Lash. In particular, half of the stocks we cover in the consumer packaged-goods and alcoholic beverage industries are trading in 4- and 5-star range.

Underpriced Energy Stocks Right Now

Energy stocks underperformed the broader market during the second quarter due to weak oil prices. We expect continued oil price weakness in 2024, says Morningstar strategist Stephen Ellis. The energy sector looks about 7% undervalued today. All of the names we cover in the drilling industry and about half of those in the integrated oil and gas industry look undervalued.

Undervalued Stocks: Financial Services

The financial-services sectorunderperformed the broad market during the second quarter, and the sector is 2% overvalued at the start of the third quarter. Banks and credit service companies are trading at attractive valuations, notes Morningstar sector director Michael Wong. That’s not surprising, given the uncertainty around interest-rate cuts and the trajectory of loan charge-offs.

Top Cheap Healthcare Stocks

Healthcare stocks underperformed during the second quarter of 2024, yet as a group are trading 1% above our fair value estimate. Opportunities do exist, particularly in the biotech industry, as well as in the providers and services, healthcare plans, and diagnostics and research industries, reports Morningstar sector director Damien Conover. We don’t think the market fully appreciates the innovation in the biotech and drugmaker group, in particular.

Inexpensive Industrials Stocks

Industrials stocks underperformed the broader market during the second quarter of 2024and look 6% overvalued today. Morningstar sector director Brian Bernard reports that half of the conglomerates we cover are undervalued, and there are isolated investment opportunities in the farm and heavy construction machinery, industrial distribution, and business-services industries.

Overlooked Real Estate Stocks to Buy

Real estate stocks underperformed the broad market during the second quarter of 2024 and currently trade at an 11% discount to our fair value estimate. More than half of the names in the sector are trading in either the 4- or 5-star range, says Morningstar senior equity analyst Kevin Brown. Interest-rate movements have continued to drive the sector’s performance, despite fundamentals holding up across industries.

Undervalued Tech Stocks for 2024

Technology stocks continued to win big in the second quarter, significantly outperforming the broad market. The tech sector looks 10% overvalued heading into the third quarter of 2024. Morningstar senior equity analyst Dan Romanoff says there are a few but not many buying opportunities in semiconductors and hardware, with more undervalued stocks in the software industry. We think the most important catalyst for the sector in 2024 revolves around generative artificial intelligence.

Underpriced Stocks: Utilities

Utilities stocks topped the broader market during the second quarter; the sector is fairly valued heading into the third quarter. Fewer than half of the stocks we cover in the sector are trading in buying range. We think the best positioned utilities are those in regions with strong energy demand growth and widespread support of clean energy investments, say Morningstar strategists Travis Miller and Andrew Bischof.

How to Find Undervalued Stocks to Buy

Undervalued stocks are those that trade below what they’re worth. Investors can turn to several metrics to gauge a stock’s worth. Some investors use standard metrics, such as price/earnings or price/cash flow. Others may look at a stock’s price relative to a company’s future growth prospects, or where a stock is trading relative to its 52-week high price.

At Morningstar, we define undervalued stocks as those that are trading below our calculated fair value estimate, adjusted for what we call uncertainty—both of which are wrapped into the Morningstar Rating for stocks. Stocks rated 4 and 5 stars are undervalued; those rated 3 stars are fairly valued; and those rated 1 or 2 stars are overvalued.