The market is trading at a slight premium to our fair value estimate, but what does this mean in 2025? “Since 2010, the market has traded at a premium of more than 4% to our valuation. It trades less than 10% of the time,” wrote Morningstar’s chief U.S. market strategist. david ax Regarding the outlook for the stock market in 2025, he said: “Positioning is becoming increasingly important as the market trades at the upper end of our fair price range.”
Here’s what stock market valuations look like through two different lenses.
• By investment style, small-cap stocks are currently the most undervalued, trading 27% below our fair value estimates. Meanwhile, large-cap growth stocks are overvalued by 28%.
• By sector, consumer cyclicals and financial services stocks appear to be the most overvalued. Real estate and energy stocks appear to be the most undervalued in the new year.
33 undervalued stocks in 2025
This is Morningstar’s new list of the cheapest stocks of 2025.
1.AO Smith fart
2. Albemarle ALB
3. Alphabet google
4. Baxter International bucks
5. Caterpillar cat
6. Comcast CMCSA
7. Corteva CTVA
8. CVS Health CVS
9. Dollar General DG
10. Dow Dow
11. Duke Energy all
12. Estee Lauder he
13. Evergy EVRG
14. ExxonMobil XOM
15. HF Sinclair dino
16. Health Peak Properties document
17. Huntington Ingalls Industries this
18. Kilroy Realty K.R.C.
19. Coles KSS
20. Kraft Heinz KHC
21. MarketAccess Holdings MKTX
22. Microsoft MSFT
23. Modern mRNA
24.NXP Semiconductors NXPI
25. Paramount Global to
26. PayPal Holdings PYPL
27. Polaris PII
28. Schlumberger S.L.B.
29. STMicroelectronics STMPA
30. Sun Community Sui
31. US Bancorp USB
32. Under Armor U.A.
33. WEC Energy WEC
Here’s an overview of how valuations stack up across sectors, as well as some key metrics from Morningstar for each undervalued stock to buy. Individual stock data is as of January 10, 2025.
Undervalued Basic Materials Stocks
Basic material inventory It will fall far behind the overall market in 2024 and be slightly undervalued heading into 2025. Morningstar Strategist Seth Goldstein reports that more than 50% of the stocks Morningstar covers in this sector trade with a Morningstar rating of 4 or 5 stars. While construction materials stocks look expensive, more than half of stocks in agriculture, metals and mining, and chemical industries are cheap.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Albemarle ALB
0.38
very high
narrow
Dow Dow
0.55
Medium
narrow
Corteva CTVA
0.82
Medium
wide
Cheap communication service stocks
of Communication service department In 2024, it outperformed the overall market. The sector enters 2025 trading just 5% below our fair value estimate. Morningstar sector director says there are still many opportunities in this sector mike hodel. Notably, nearly three-quarters of the stocks we cover in the communications subsector trade in the 4-star and 5-star ranges.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
alphabet google
0.87
Medium
wide
Paramount Global FOR
0.52
very high
none
Comcast CMCSA
0.67
Medium
narrow
Today’s cheap consumer cyclical stocks
Consumer Cyclical Stocks The sector enters 2025 19% above our fair value expectations. According to Morningstar sector directors, less than half of the stocks we cover in this sector trade in the 4- or 5-star range. erin rush. The automotive, apparel, and travel industries offer the most opportunities from a valuation perspective.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Polaris II
0.49
Medium
wide
Coles KSS
0.30
very high
none
Under Armor UA
0.57
expensive
none
Undervalued stocks in the consumer defense sector
Defensive stocks for consumers It was late to the market last year. The sector appears to be overvalued by 8% heading into the new year. Still, there’s a chance they’ll be found, says Morningstar’s Rush. In particular, we believe the alcoholic beverage industry remains undervalued.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Dollar General DG
0.62
Medium
narrow
Estée Lauder EL
0.45
Medium
wide
Kraft Heinz KHC
0.51
Medium
narrow
Energy stocks are currently cheap
energy stocks In 2024, it was significantly lower than the overall market. Morningstar director says OPEC will be forced to make supply decisions in 2025 as global demand continues to slump Josh Aguilar. Currently, the energy sector appears to be undervalued by about 10%. Every company we cover in the integrated oil and gas industry appears to be undervalued.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
HF Sinclair DINO
0.62
very high
narrow
ExxonMobil XOM
0.79
expensive
narrow
Schlumberger SLB
0.68
Medium
narrow
Undervalued stocks: financial services
of financial services sector Outperforming the broader market last year, the sector is overvalued by 10% as of early 2025. “If the U.S. does not fall into recession and the yield curve becomes steeper or remains steeper for longer than the market expects, there may be room for further upside,” the financial sector said. Star sector director says Michael Wong.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Market Access Holdings MKTX
0.71
expensive
wide
PayPal Holdings PYPL
0.80
expensive
narrow
US Bancorp USB
0.89
Medium
wide
Top cheap healthcare stocks
healthcare stocks It is well behind last year’s market, with the group as a whole trading 8% below our fair value estimates. All stocks in the Healthcare Plans industry appear to be undervalued, according to Morningstar Strategists. Karen Andersen. And more than half of the biotech and pharmaceutical stocks we cover are also undervalued.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Baxter International BAX
0.47
expensive
narrow
CVS Health CVS
0.52
Medium
narrow
latest mRNA
0.30
very high
none
cheap industrial stocks
industrial stocks It underperformed the overall market in 2024 and now looks 5% overvalued. Morningstar Sector Director brian bernard According to the report, about half of the stocks in the agriculture and heavy construction industry appear to be undervalued, as well as some aerospace and defense stocks.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
AO Smith AOS
0.82
Medium
wide
caterpillar CAT
0.83
Medium
wide
Huntington Ingalls Industries HII
0.58
Medium
wide
Overlooked real estate stocks to buy
real estate stocks It lags significantly behind the broader market in 2024, trading 11% below our fair value. More than half of the stocks in this sector trade in the 4-star or 5-star range, according to Morningstar senior equity analysts. kevin brown. Interest rate trends continue to drive the sector’s performance.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Healthpeak properties documentation
0.64
Medium
none
Kilroy Realty KRC
0.60
expensive
none
Sun Community SUI
0.70
Medium
none
Undervalued tech stocks for 2024
technology stocks In 2024, it skyrocketed and outperformed the overall market. The tech sector appears to be overvalued by 7% heading into the new year. Morningstar Senior Equity Analyst Dan Romanoff There are some buying opportunities in the sector, but not many, he said. We remain confident in the long-term tailwinds in the technology sector, including cloud computing, artificial intelligence and the long-term growth in demand for semiconductors, he added.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
NXP Semiconductors NXPI
0.69
Medium
wide
Microsoft MSFT
0.85
Medium
wide
STMicroelectronics STM
0.56
expensive
narrow
Undervalued Stocks: Utilities
utility stocks Keeping pace with the 2024 market. “We believe investors need to prepare for much higher returns from utilities starting in 2025,” Morningstar strategists said. travis miller and andrew bishop: Over the past three years, utilities have returned 8% annually, which is the same as the sector’s 40-year average annual return and what Messrs. Miller and Bischoff think investors should expect.
Company/Ticker
price/fair value
Fair value uncertainty
Evaluation of economic moat
Evergy EVRG
0.89
low
narrow
Duke Energy ALL
0.93
low
narrow
WEC Energy WEC
0.92
low
narrow
How to find undervalued stocks to buy
An undervalued stock is one that is trading below its value. Investors can rely on several metrics to assess the value of a stock. Some investors use standard metrics such as price/earnings or price/cash flow. One might look at the stock price compared to the company’s future growth prospects, or look at where the stock is trading compared to its 52-week high.
Morningstar defines undervalued stocks as stocks that trade below our estimated fair value, which is adjusted for so-called uncertainties. Both of these are factored into a stock’s Morningstar Rating. Stocks rated 4 and 5 stars are undervalued. Those rated 3 stars are a great value. And those rated 1 or 2 stars are overrated.
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