Morningstar: Buy these 14 cheap stocks that still have room to rise in a bear market

  • Contrary to intuition, bear market rallies can make it harder for investors to do their jobs.
  • It is difficult to determine which stocks are overvalued and which still have room to rise.
  • Morningstar shared 14 stocks that are still cheap despite beating the market.

The shares are at one upward crack since mid-October, just in time to start the holidays with good cheer.

But some analysts have warned that any celebrations could be premature.

“Most of the time, markets don’t bottom out until interest rates start to fall, and we’re a long way from that,” said Goldman Sachs Chief Equities Strategist Peter Oppenheimer in a recent statement. interview with Bloomberg.

Mike Wilson, Morgan Stanley’s chief investment officer, echoed Oppenheimer’s statement in a CNBC interview last week. “The bear market’s final move is likely to come in Q1 next year, when earnings finally catch up to where we think they will be next year,” he told the outlet.

In addition to the threat of imminent market volatility, a bear market rally such as the current one may, contrary to intuition, make it more difficult for investors to determine which stocks are worth buying, as some stocks that have caught up leading up to the risk rise far above their fair value. .

In other words, investors may find it increasingly difficult to distinguish between those stocks that still have room to rise and those that have risen unreasonably and may face a correction in the near future.

14 undervalued stocks to buy

To find the stocks that have recently risen but still have room to rise, Morningstar analysts screened for undervalued companies from a basket of names that were up 10% or more on Nov. 17. They then narrowed that list down to the stocks that Morningstar analysts consider undervalued.

Of the 14 remaining names, four of these stocks were deemed to have the largest margins of safety, or a clear and sustainable competitive advantage over their peers.

Fast food chain Yum China (YUMC)for example, boasts a robust enough supply chain and brand name to become the main beneficiary in China’s growing fast-food industry, said Senior Equity Analyst Ivan Su, who added he was also optimistic about the company’s top-line drivers.

Despite fierce competition in gene editing and RNA-based therapies, Morningstar strategist Karen Andersen believes that biotechnology company Ionis Pharmaceuticals (IONS) has the ability to emerge victorious from battle.

“Ionis has built a huge pipeline of promising new drugs that are coming to market quickly and securing a narrow moat,” she said. In her base case scenario for the stock, she predicts the company’s sales will rise to $3.1 billion by 2030, while operating margins will approach 50%.

Analysts noticed that too Kellogg (K) has a significant advantage due to its focus on new product launches and strong relationship with consumers. Consumer Sector Director of Equity Research Erin Lash was particularly optimistic about the company’s ability to generate returns in excess of its cost of capital over the next two decades, even in a more bearish environment.

“We believe that Kellogg’s position as a leading packaged food manufacturer and its arsenal of resources will allow Kellogg to maintain valuable shelf space for its offerings,” she explained.

Finally, Morningstar analysts stressed AstraZeneca (AZN)noting the strong pipeline and the development of drugs with high pricing power.

“AstraZeneca has built its leading presence in the pharmaceutical and biotech industries on patented drugs and an evolving pipeline that combine to form a broad moat. The addition of new drugs is driving industry-leading growth,” wrote Damien Conover, director of equity strategy for the healthcare sector.

The full list of Morningstar’s 14 underrated bear market stars is below, along with each company’s ticker, sector, bear market return and price discount.

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