When the stock market is volatile, as in recent months, it can pay off to focus on undervalued stocks.
Morningstar has put together a list of five “ultracheap” stocks to buy. These are stocks that trade more than 50% below the firm’s fair value estimates. To be sure, the stocks are down for a reason, so be aware of the risk and the need for patience, Morningstar advises.
In any case, here are fantastic five, starting with the most undervalued as of Nov. 3.
PayPal
PayPal PYPL, the payments company: Morningstar moat (durable competitive advantage) is narrow. Morningstar fair value estimate is $135. Thursday price quote: $55.05.
“The company is seeing some near-term headwinds, as the positives from the pandemic reverse and the macroeconomic situation worsens,” wrote Morningstar analyst Brett Horn.
“Management is attempting to combat the pressure with a greater focus on margin improvement, and we see this as the right move. Longer term, a mix of competitive opportunities and threats create a wide range of outcomes.”
Albemarle
Albemearle ALB, the world’s largest lithium producer. Lithium is used in electric car batteries. Morningstar moat is narrow. Morningstar fair value estimate is $300. Thursday price quote: $115.45.
“The market is concerned that lithium spot prices will fall further to the end of 2023 and into 2024, due to oversupply,” wrote Morningstar analyst Seth Goldstein.
“We disagree and expect prices will rise in 2024, as battery producers’ inventory destocking runs its course…. We see lithium returning to structural undersupply in 2024.”
Etsy
Etsy ETSY, the online arts and crafts market. Morningstar moat is wide. Morningstar fair value estimateis $145. Thursday price quote: $63.20.
“Etsy offers compelling value for investors, despite a brutal 2023, which has seen its share price fall by a striking [47]%,” wrote Morningstar analyst Sean Dunlop.
“While we're sympathetic to the market's concerns regarding the craft marketplace's growth prospects and potential operating leverage, we view its reaction as myopic. We foresee a route to double-digit gross merchandise sales”
Match
Match MTCH, the online dating service company. Morningstar moat is narrow. Morningstar fair value estimate is $65. Thursday price quote: $29.30.
“Match Group’s price strategy is generating returns in terms of revenue growth,” wrote Morningstar analyst Ali Mogharabi. “That, combined with continuing cost control, created operating leverage and produced an impressive third quarter.”
He said third-quarter results displayed continuing strength of the Tinder app and its brand and further adoption and increased monetization of the Hinge app.
Sabre
Sabre SABR, an air bookings platform. Morningstar moat is narrow. Morningstar fair value estimate is $9. Thursday price quote: $3.35.
“Despite management execution, shares are still down about [45]% this year,” wrote Morningstar analyst Dan Wasiolek. That’s “driven by investor's distaste for debt leverage companies amid a still uncertain economic environment and higher costs of capital,” he said.
“We think this concern is misguided, especially given Sabre's improved liquidity profile.” It surpassed expectations in its last earnings report.
The author owns shares of PayPal.
