Stock-market valuations don’t argue for heavy buying right now.
The forward price-earnings multiple for the S&P 500 was 17.9 as of Friday, according to FactSet. That’s not too far from the five-year average of 18.7 and it's above the 10-year average of 17.5.
So the best strategy now might be to stand pat. But if you’re looking to increase your equity weighting, you may want to consider Morningstar's list of the “10 best stocks to buy now.”
The list is culled from Morningstar’s roster of the 131 best stocks to buy in general. These are companies with strong fundamentals: competitive advantages, predictable cash flows and strong managements.
Morningstar assigns all the companies wide moats, meaning it sees them with competitive advantages that will last 20 years or more.
Morningstar culled the 10 most undervalued stocks among those 131 to create the top 10 list for right now. It measures undervaluation based on its fair-value estimates.
Here are the 10, starting with the most undervalued as of Sept. 26.
1. Estee Lauder, the beauty products company
(EL) -)
Morningstar fair value estimate: $249. Monday price quote: $143.05.
“As a leading provider of premium beauty products, Estee Lauder has fortified its competitive standing with category-leading brands in skin care, cosmetics, and fragrances,” wrote Morningstar analyst Dan Su.
It also has “preferred vendor status across brick-and-mortar and digital channels.”
2. Imperial Brands, the world’s fourth largest tobacco company.
(IMBBY) -)
Morningstar fair value estimate: $34. Monday price quote: $20.
“Imperial Brands reported first-half fiscal 2023 results that beat our estimate of operating income, although turnover was a little light,” wrote Morningstar analyst Philip Gorham.
“Imperial appears to be delivering on its operational turnaround and seems likely to meet management's guidance this year and beyond.”
3. Anheuser-Busch InBev, the giant brewer
(BUD) -)
“The impact of the Bud Light saga was visible in Anheuser-Busch InBev's first-half earnings, Gorham wrote.
But the fact that company management said Bud Light's share hasn’t worsened since April, when a boycott of the brand began, suggests further downside from the marketing mishap is limited, he said. And profit margins seem to have bottomed in Latin America.
Morningstar fair value estimate: $90. Monday price quote: $53.35.
4. Roche Holding, the Swiss pharmaceutical stalwart
(RHHBY) -)
Morningstar fair value estimate: $56. Monday price quote: $33.60.
5. Taiwan Semiconductor Manufacturing
(TSM) -)
Morningstar fair value estimate: $137. Monday price quote: $87.55.
6. U.S. Bancorp
(USB) -)
Morningstar fair value estimate: $52. Monday price quote: $32.05.
7. Zimmer Biomet, the medical-device producer
(ZBH) -)
Morningstar fair value estimate: $175. Monday price quote: $111.25.
8. RTX, an aerospace and defense contracting company
(RTX) -)
Morningstar fair value estimate: $111. Monday price quote: $71.40.
9. Yum China, China’s largest restaurant franchiser, including KFC
(YUMC) -)
Morningstar fair value estimate: $84. Monday price quote: $55.35.
10. Wells Fargo, the banking giant
(WFC) -)
Morningstar fair value estimate: $61. Monday price quote: $39.60.
The author of this story owns shares of Anheuser-Busch InBev and U.S. Bancorp.
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