The stock market keeps hitting new record highs almost every week. With sectors like semiconductors and AI taking off, the sky is the limit.
But is it too late to get a bargain in this roaring market? Fortunately, there are still some great values out there. These are seven of the top undervalued stocks to buy now. All of these are 5-star stocks according to Morningstar’s analysts, which suggests these seven strong buy stocks have dramatic upside to fair value in the weeks and months to come.
Estee Lauder (EL)
Estee Lauder (NYSE:EL) has lost its shine. The company is one of the world’s leading cosmetic companies and traditionally posted double-digit annualized earnings growth over the years.
But the firm has gone into a tailspin over the past 24 months. An initial economic reopening surge has petered out within the cosmetics space and retailers now have far too much inventory on hand. The cosmetics market has slumped particularly badly in Asia, which has hit Estee Lauder hard.
EL stock plummeted as much as 75% from peak to trough. Now, though, EL stock is back on the upswing as earnings results have started to improve. Morningstar believes that the downturn is temporary and that EL stock is 29% undervalued today, with upside to $210 per share.
JD.com (JD)
The Chinese economy is stuck in a downswing. A series of business closures tied to the pandemic along with shifting international trade and supply chains have harmed sentiment.
It’s not hard to paint the bearish case for Chinese tech stocks such as JD.com (NASDAQ:JD). Between the economic strain and geopolitical worries, the pessimism has reached an incredible level.
Under the surface, however, things aren’t that bad, at least as far as JD goes. JD has grown revenues from $67 billion in 2018 to an estimated $150 billion in 2023. Profitability is up tremendously as well.
In fact, JD shares are now going for less than 10 times forward earnings. That makes for a tremendous entry point on this leading Asian e-commerce play.
Sensata Technologies (ST)
Sensata Technologies (NYSE:ST) is a maker of electronic sensors primarily for automobiles and other transportation vehicles.
The company has lost momentum over the past year as the auto market has slowed down. Weakness in the EV space has been particularly troublesome, given that electric vehicles use more electronic equipment than traditional ICE vehicles.
Regardless, sentiment appears to be bottoming out. JP Morgan and Bank of America both downgraded ST stock recently, potentially marking a low point in the firm’s outlook. With shares at just eight times forward earnings and earnings set to grow going forward, shares seem primed for a big rebound as soon as the auto market turns.
Sensata is one of Morningstar’s most compelling 5-star stocks right now. Morningstar’s William Kerwin believes shares are worth $69 each, implying that the strong buy stock has 100% upside from here.
Pfizer (PFE)
Pfizer (NYSE:PFE) is not feeling well right now. The pharma-giant’s stock plunged from a peak of $60 in 2021 to less than half today. Today, PFE stock sells for far less than it did in January 2020, long before anyone had started thinking about COVID-19 vaccines.
And sure, the vaccines aren’t generating the sorts of revenues now that they did in years past.
But Pfizer’s revenues are still far higher today than they were before the pandemic. It’s not like Pfizer has wasted all the money it generated during the boom years; rather it has invested in its upcoming drug pipeline and the rewards should arrive over the next few years.
Morningstar’s Damien Conover sees tremendous value in PFE stock; he believes shares are worth $42 each compared to their $26 share price today. Conover is optimistic on Pfizer’s pipeline, seeing strong potential in the firm’s upcoming oncology and immunology drugs. In addition, Pfizer’s robust cash flows allow it to pay a generous 6.3% dividend yield today.
Anheuser-Busch InBev (BUD)
Anheuser-Busch InBev (NYSE:BUD) had a hangover of a year in 2023. After a series of marketing missteps, the giant brewer became the subject of a major boycott, and sales of certain beer brands fell double-digits year-over-year.
Investors shunned BUD stock given these social controversies. And that concern is totally understandable.
However, Anheuser-Busch is still the world’s largest brewer by a wide margin. And beer remains quite a profitable business, even amid the recent supply chain and inflationary struggles.
Meanwhile, on the marketing side, relief may be on the way. Former President Trump recently suggested that Anheuser-Busch should be given a “second chance“, leading some consumers to end their boycott against the company. With any positive sales momentum, BUD stock should recover its prior losses.
Yum China (YUMC)
It isn’t just Chinese tech companies that are slumping recently. Many Chinese stocks in other sectors are also near multi-year lows.
Of these, Yum China (NYSE:YUMC) is one of the most compelling. It operates the fast food chains KFC, Pizza Hut and Taco Bell along with various homegrown brands in the Chinese market.
While the Chinese consumer is currently struggling, fast food tends to hold up alright during economic downturns. To that point, analysts see Yum China growing earnings per share 10% in 2024, and growth accelerating to 14% in 2025. This comes from a starting point of less than 20 times forward earnings.
Put another way, YUMC stock has fallen 31% over the past year. This comes even as the business is continuing to open new locations and grow its earnings nicely. When sentiment around Chinese stocks improves, Yum China shares should surge.
Polaris (PII)
Polaris (NYSE:PII) is a leading consumer discretionary company which makes off-road vehicles such as ATVs and snowmobiles.
The company enjoyed unusually strong sales demand during the pandemic. Polaris’ vehicles allowed folks to have fun while not exposing themselves to COVID-19. However, as the economy reopened, demand for these types of vehicles has fallen back to more traditional levels.
As revenues and earnings have slipped, investors have dumped the stock. However, Polaris looks like a bargain here thanks to its solid brands and strong track record. It may also benefit from the renewed focus on the Made in America trend as Polaris still manufactures a sizable portion of its vehicles in North America.
On the date of publication, Ian Bezek held a long position in EL, PII, and JD stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
