Morningstar: Stocks have rarely been this cheap, and these 33 undervalued names are the top picks heading into the fourth quarter of 2022

• After a summer rally, stocks have tumbled to new year-to-date lows.
• But stocks are now the cheapest they’ve been since the pandemic began, said Morningstar.
• The firm shared its top 33 most undervalued stock picks going into the fourth quarter of 2022.

On the back of optimistic economic data, stocks have officially tumbled to new year-to-date lows, exposing this summer’s bear market rally for what it really was: a mere glimmer of hope for weary investors.

In an investing environment ridden with bear traps and heightened volatility, finding excess returns is an especially formidable uphill battle for equity investors. But that doesn’t mean that there’s no gains to be made, said Dave Sekera, the chief US market strategist at Morningstar.

“The current level of undervaluation is the greatest discount to our long-term, intrinsic valuations since the emergence of the pandemic,” Sekera wrote in a market commentary from October 3. “On a longer historical time frame, there have only been a few other instances when our price versus fair value metric had dropped to similar levels.”

According to Sekera, most near-term headwinds that might compress earnings have already been priced into the market. “In our view, we think the market is overly pessimistic regarding the long-term prospects for equity valuations,” he added.

Morningstar’s 33 top stock picks

Currently, the two most undervalued sectors appear to be communications and consumer cyclicals, both of which bore the brunt of the recent selloff, said Sekera. On the other hand, the defensive sectors are trading relatively close to Morningstar’s fair value estimates, while utilities stocks seem to skew rich versus their fair values. When taking market capitalization into consideration, small-cap stocks are trading at the biggest discount, while medium and larger sized firms appear to be more fairly priced, Sekera added.

In note from October 4, Morningstar analysts listed their top 33 most undervalued stocks heading into the fourth quarter of the year. The full list of stocks is below, along with each firm’s ticker, market capitalization, and sector.