Here’s the new list of Morningstar’s top underpriced analyst picks to buy for 2024.
The U.S. stock market finished 2023 up a remarkable 26% as measured by the Morningstar US Market Index.
Heading into 2024, stocks look fairly valued, according to our metrics: Looking at a composite of the stocks Morningstar covers, the U.S. stock market is trading at a price/fair value of 1.00 at the end of 2023. In comparison, stocks were trading at a 16% discount to fair value at the start of 2023.
With the market trading around our fair value estimate, what might that mean for 2024? “While we forecast that the rate of economic growth will slow and stocks have already rallied and are nearing their highs, we still see multiple undervalued areas that provide relatively large margins of safety,” writes Morningstar Chief U.S. Market Strategist David Sekera in his first-quarter 2024 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 29% below our fair value estimate. Meanwhile, large core stocks are 8% overvalued.
By sector, technology, industrials, and consumer cyclical stocks look overvalued. The most undervalued sector heading into 2024 is communication services, trading 11% below our fair value estimate.
By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide-moat stocks are overvalued by 1% while narrow- and no-moat stocks are undervalued by 2% and 5%, respectively.
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