As you well know, stocks have tumbled, with the S&P 500 dropping 20% year to date. But some companies still are going strong.
Enough, in fact, that in the second quarter, Morningstar analysts increased their fair-value estimates by 10% or more for 52 of the 859 U.S.-listed companies that they cover.
To be sure, that’s barely more than half the quarterly average of 98 in the past five years. But it still gives investors quite a few stocks to consider.
Looking at the stocks its analysts view as undervalued, Morningstar screened for the ones with the largest fair-value increases in the second quarter.
“Despite the slim pickings, stocks that saw meaningful fair-value increases and trade well below those estimates could provide long-term investors with opportunities,” Morningstar said in a commentary accompanying the list.
Here are some of the stocks that made the roster. The fair-value increases came in the second quarter. The discount is as of July 11 and is the percentage beneath fair value that the share price stood at then.
· Macy’s (M), the department store chain. Fair-value increase: 13%, discount: 33%.
· Broadcom (AVGO), a semiconductor maker. Fair-value increase: 14%, discount: 23%.
· Shell SHEL, the U.K. oil producer. Fair-value increase: 19%, discount: 22%.
· Tenet Healthcare (THC), a hospital owner. Fair-value increase: 44%, discount: 43%.
· Ameriprise Financial (AMP), an asset manager. Fair-value increase: 29%, discount: 32%.
· Rio Tinto (RIO), a U.K. mining company. Fair-value increase: 18%, discount: 26%.
· Albemarle (ALB), a specialty chemicals company. Fair-value increase: 42%, discount: 38%.
· Asbury Automotive (ABG), an auto dealership chain. Fair-value increase: 62%, discount: 57%.
· Livent (LTHM), a lithium producer. Fair-value increase: 52%, discount: 44%.
· Petroleo Brasileiro (PBR), Brazil’s state-owned oil company. Fair-value increase: 46%, discount: 30%.
Morningstar’s Take on Macy’s
“We believe no-moat Macy’s is struggling to stay relevant, as consumers have many choices,” Morningstar analyst David Swartz wrote in a commentary.
“While Macy’s operates stores in most top-tier U.S. malls, it also operates scores of stores in weaker malls, some of which may not fully recover from shutdowns and the economic fallout of the pandemic.”
Morningstar’s Take on Asbury Automotive
“Although no auto dealer is immune to macroeconomic risks, Asbury Automotive Group's size, focused acquisition strategy, and diverse revenue streams should allow the firm to grow at the expense of smaller dealers,” Morningstar analyst David Whiston wrote in a commentary. He assigns the company a narrow moat.
“Asbury gets about 50% of its revenue from new-car sales, and luxury and midline imports make up 83% of new-vehicle revenue.” Luxury-car buyers can usually afford purchases in a recession, he noted.
The author of this story owns shares of Shell.
