Value stocks have greatly outperformed growth over the past year, with the Russell 1000 Value index slipping 9%, compared to a 26% drop for the Russell 1000 Growth index.
That doesn’t guarantee the trend will continue, but plenty of experts note that the late stages of economic cycles generally favor value stocks.
If you’re thinking of diving in, here are three stocks that Morningstar analysts see as particularly undervalued.
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Celanese, a chemical company
Morningstar analyst Seth Goldstein assigns Celanese (CE) a narrow moat (durable competitive advantage). He puts fair value for the stock at $160, compared to a recent quote of $118.
“Celanese is the world's largest producer of acetic acid and its chemical derivatives, including vinyl acetate monomer and emulsions,” he wrote in a commentary. “These products are used in the company’s specialized end products or sold externally.”
Celanese products primarily go to the automotive, cigarette, coatings, construction and medical industries.
“Celanese's Clear Lake, Texas, plant benefits from a cost advantaged feedstock from low-cost U.S. natural gas,” Goldstein said.
“The company plans to expand acetic acid production capacity at Clear Lake by roughly 50%, which should benefit segment margins thanks to lower unit production costs relative to other geographies.”
Hanesbrands, the apparel company
Morningstar analyst David Swartz gives Hanesbrands (HBI) a narrow moat. He puts fair value for the stock at $22, compared to a recent price of $7.65.
“Hanesbrands is the market leader in basic innerwear (60% of its 2021 sales) in multiple countries,” he wrote in a commentary. “We believe its key innerwear brands like Hanes and Bonds (in Australia) achieve premium pricing.”
Further, “while the firm faces challenges from inflation, the strong U.S. dollar, lower inventory levels at retailers, and covid-19, we think Hanes' share leadership in replenishment apparel categories puts it in better shape than some competitors,” Goldstein said.
“In May 2021, the firm unveiled its Full Potential plan to expand global Champion, bring growth back to innerwear, improve connections to consumers (through greater marketing and enhanced e-commerce, for example), and streamline its portfolio.”
Citigroup, the bank
Morningstar analyst Eric Compton assigns Citigroup (C) no moat and puts fair value for the stock at $75. It recently traded at $48.
“The bank's best-performing business is its institutional clients group, where the bank's commercial banking and capital markets operations have scale and a unique global footprint that few can replicate,” he wrote in a commentary.
“Its truly global presence differentiates the bank from all of its U.S.-based peers, and this wide geographical footprint should help Citigroup remain a bank of choice for companies with cross-border needs.”
But, “this global presence can be expensive and complicated to maintain, and the bank's markets desk also produces low returns, so there are weaknesses to this approach, as well,” Compton said.
Bottom line: “the bank won’t be a top performer operationally compared with peers, but it is simply too cheap,” he said.
