33 U.S. Stocks to Watch for Potential Growth in Q2 2024

The U.S. stock market finished the first quarter of 2024 up more than 10% as measured by the Morningstar U.S. Market Index.

Heading into the second quarter, stocks look fairly valued, according to our metrics: Looking at a composite of the stocks Morningstar covers, the U.S. stock market is trading at a price/fair value of 1.03 at the end of the first quarter. In comparison, stocks were trading at a 12% discount to fair value one year ago.

With the market trading at a slight premium to our fair value estimate, what might that mean for the remainder of 2024? “In our view, it is unlikely that what has worked for the last year and a half will be what continues to work,” writes Morningstar Chief U.S. Market Strategist David Sekera in his second-quarter 2024 stock market outlook. “We think now is a good time for investors to look for contrarian investment opportunities, especially in those areas that have underperformed, are unloved—and most importantly—undervalued.”

Here’s how stock market valuations look through a few different lenses:

By investment style, small-value stocks are the most undervalued stocks right now, trading 26% below our fair value estimate. Meanwhile, large- and mid-cap growth stocks are 8% overvalued.
By sector, industrials, technology, financial services, and consumer defensive stocks look most overvalued. The most undervalued sectors heading into the second quarter are real estate, utilities, and communication services.
By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide-moat stocks are overvalued by 4%, while narrow- and no-moat stocks are about fairly valued.

33 Undervalued Stocks to Buy for Q2 2024

Here’s the list of Morningstar’s top underpriced stock picks for the second quarter of 2024.

Adobe ADBE
Albemarle ALB
APA APA
Cognizant Technology Solutions CTSH
Comcast CMCSA
Crown Castle CCI
Dow DOW
Duke Energy DUK
Entergy ETR
Federal Realty Investment Trust FRT
FMC FMC
Hanesbrands HBI
Illumina ILMN
Kraft Heinz KHC
MarketAxess Holdings MKTX
Moderna Therapeutics MRNA
NiSource NI
PayPal Holdings PYPL
Realty Income O
Schlumberger SLB
Sealed Air SEE
Stericycle SRCL
STMicroelectronics STM
TC Energy TRP
Tyson Foods TSN
Under Armour UA
U.S. Bancorp USB
VF VFC
Ventas VTR
Warner Brothers Discovery WBD
Wesco International WCC
WK Kellogg KLG
Zimmer Biomet ZBH

Here’s a brief summary of how valuations stack up across sectors, along with some key Morningstar metrics about each undervalued stock to buy. Individual stock data is as of March 31, 2024.

Undervalued Basic-Materials Stocks

Basic-materials stocks have underperformed the broader so far in 2024 and are fairly valued heading into the second quarter. Morningstar strategist Seth Goldstein reports that 60% of the stocks that Morningstar covers in the sector are trading with Morningstar Ratings of 4 or 5 stars. While building-materials stocks look overvalued, more than half of the stocks in the agriculture, chemicals, and metals and mining industries are underpriced.

Underpriced Communications-Services Stocks

The communication-services sector performed in line with the broad market during the first quarter. The sector enters the second quarter of 2024 trading 6% below our fair value estimate. While heavyweight Meta Platforms META has continued to soar this year, there is plenty of opportunity in the sector, observes Morningstar sector director Mike Hodel. In particular, more than three fourths of the stocks we cover in the telecom subsector are trading in 4- and 5-star range.

Cheap Consumer Cyclical Stocks Today

Consumer cyclical stocks underperformed the broader market during the first quarter. The sector enters the second quarter of 2024 trading 2% below our fair value estimate. Less than half of the stocks that we cover in the sector are trading in 4- and 5-star range, says Morningstar sector director Erin Lash. The auto, apparel, and travel and leisure industries hold the most opportunities from a valuation perspective.

Undervalued Stocks in the Consumer Defensive Sector

Consumer defensive stocks lagged the market during the first quarter. The sector looks 6% overvalued heading into the second quarter of 2024. Yet there are opportunities to be found, says Morningstar’s Lash: In particular, nearly half of the stocks we cover in the consumer packaged goods industry are trading in 4- and 5-star range. All of the tobacco stocks we cover look undervalued, too.

Underpriced Energy Stocks Right Now

Energy stocks outperformed the broader market during the first quarter as oil prices rose. We expect the US production growth curve to flatten further in 2024, says Morningstar sector strategist Stephen Ellis. The energy sector looks about 3% undervalued today. About half of the names we cover in the drilling and integrated oil and gas industries look undervalued.

Undervalued Stocks: Financial Services

The financial-services sector has outperformed the broad market so far in 2024; the sector is 6% overvalued at the start of the second quarter. However, more than half of the bank stocks we cover are trading at 4- and 5-star levels, notes Morningstar sector director Michael Wong. Over the medium term, we expect balance sheet changes to offset some of the pressure from lower interest rates, he concludes.

Top Cheap Healthcare Stocks

Healthcare stocks underperformed during the first quarter of 2024, yet as a group are trading 1% above our fair value estimate. Opportunities do exist, particularly in the biotech industry, as well as among providers and services, healthcare plans, and drug manufacturers, reports Morningstar sector director Damien Conover. We don’t think the market fully appreciates the innovation in the biotech and drugmaker group, in particular.

Inexpensive Industrials Stocks

Industrials stocks slightly outperformed the broader market during the first quarter of 2024 and look 13% overvalued today. Morningstar sector director Brian Bernard reports that isolated investment opportunities remain in the aerospace and defense, farm and heavy construction machinery, and waste management industries.

Overlooked Real Estate Stocks to Buy

Real estate stocks finished the first quarter of 2024 in the red and currently trade at an 11% discount to our fair value estimate. More than half of the names in the sector are trading in either the 4- or 5-star range, says Morningstar senior equity analyst Kevin Brown. We expect rental rate, revenue, and net operating income growth to remain positive in 2024.

Undervalued Technology Stocks for 2024

Technology stocks continued to win big in the first quarter, outperforming the broad market. The tech sector looks 8% overvalued heading into the second quarter of 2024. Morningstar senior analyst Dan Romanoff says there are a few but not many buying opportunities in semiconductors, hardware, and software. We think the most important catalyst for the sector in 2024 revolves around generative artificial intelligence.

Underpriced Stocks: Utilities

Utilities stocks lagged the broader market during the first quarter; the sector is 7% undervalued heading into the second quarter. Nearly three fourths of the stocks we cover in the sector are trading in buying range. We think the best positioned utilities are those in regions with strong energy demand growth and widespread support of clean energy investments, say Morningstar sector strategists Travis Miller and Andrew Bischof.

How to Find Undervalued Stocks to Buy

Undervalued stocks are those that trade below what they’re worth. Investors can turn to several metrics to gauge a stock’s worth. Some investors use standard metrics, such as price/earnings or price/cash flow. Others may look at a stock’s price relative to a company’s future growth prospects, or where a stock is trading relative to its 52-week high price.

At Morningstar, we define undervalued stocks as those that are trading below our calculated fair value estimate, adjusted for what we call uncertainty—both of which are wrapped into the Morningstar Rating for stocks. Stocks rated 4 and 5 stars are undervalued; those rated 3 stars are fairly valued; and those rated 1 or 2 stars are overvalued. For more about how we calculate our fair value estimates, think about the Morningstar Uncertainty Rating, and more, read Morningstar’s Guide to Stock Investing.

This story was originally published on Morningstar.com on April 2. 

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