Here’s the new list of Morningstar’s top underpriced analyst picks for third-quarter 2023
The U.S. stock market finished the second quarter of 2023 up more than 8%, as measured by the Morningstar US Market Index. The index is up more than 16% this year through the end of June.
Heading into the third quarter of 2023, stocks still look undervalued, according to our metrics—but far less undervalued than they looked at the start of the year. According to a composite of the stocks Morningstar covers, the U.S. stock market is trading at a price/fair value of 0.95, which translates to a 5% discount to our fair value estimate at the end of the second quarter. That’s up from a 16% discount to fair value at the start of 2023.
“In the wake of the first half’s rally, we are seeing several opportunities for investors to reallocate their portfolios to take profits where the market has overextended itself and reinvest those gains in undervalued areas that have been left behind,” writes Morningstar chief U.S. market strategist David Sekera in his third-quarter 2023 stock market outlook.
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 42% below our fair value estimate. Meanwhile, large growth stocks are just 1% undervalued, and large core stocks are 2% overvalued.
By sector, communication services and real estate are the most undervalued sectors today, trading at 21% and 17% below our fair values, respectively. Technology stocks, meanwhile, are about 7% overvalued.
By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide- and narrow-moat stocks are undervalued by 3% and 6%, respectively, while no-moat stocks are 16% undervalued.
Click to the list of Morningstar’s top underpriced stock picks for the third quarter of 2023.
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