The stock market has taken off in 2023, with the S&P 500 up 15% year to date. But plenty of stocks remain undervalued, according to Morningstar analysts.
The firm’s chief U.S. market strategist, Dave Sekera, has chosen four of his favorites.
Pinterest, the social media stalwart
(PINS) -)
Morningstar moat (durable competitive advantage) rating: narrow. Morningstar fair value estimate: $36. Thursday closing stock price: $27.20.
“Sometimes you just got to stick with a winning horse,” Sekera wrote in a commentary. “With Alphabet GOOGL and Meta Platforms META moving up as much as they have thus far this year, I think the market should look for undervalued opportunities within the digital-advertising space that have been left behind. That leaves me with Pinterest.”
Morningstar analyst Ali Mogharabi wrote that he expects Pinterest “to attract a pinch of digital ad spending, an addressable market of more than $600 billion.”
Park Hotels & Resorts, a high-end hotel REIT
(PK) -)
Morningstar moat: none. Morningstar fair value estimate: $26.50. Thursday closing price: $13.15.
While Park Hotels, the country’s second largest hotel REIT, doesn’t have a moat, Morningstar assigns one to very few companies in the real estate sector, Sekera explained. “We expect Park Hotels will benefit from the resurgence in international travel.”
That especially includes tourism from China, which has loosened its pandemic travel restrictions, he noted. Sekera also likes the REIT’s (real estate investment trust) 4.87% forward dividend yield.
“We think Park has opportunities to create value,” wrote Morningstar analyst Kevin Brown. “Management has only had control of the portfolio for three years.”
U.S. Bancorp, the country’s largest regional bank
(USB) -)
Morningstar moat: wide. Morningstar fair value estimate: $53. Thursday closing price: $33.
It has an appealing 5.94% forward dividend yield, Sekera says. Given its size, “we expect less deposit flight risk here” than other banks, he said.
“Only 14% of its loan book is commercial real estate, and that’s one of the big areas that investors are concerned about with regional banks.” Also, the bank has plenty of capital cushion to absorb any losses in the real estate sector, Sekera said.
Meanwhile, U.S. Bancorp has “very good earnings leverage,” Sekera said. “So, over the long term, we forecast it will earn about 15% returns on tangible common equity.”
Teradyne, a maker of test equipment for semiconductors
(TER) -)
Morningstar moat: wide. Morningstar fair value estimate: $157. Thursday closing price: $107.05
“Although technology is overvalued from a sector perspective, there are still a number of undervalued stocks there that have been left behind,” Sekera said. And he thinks this is one of them.
“In the semiconductor space, there has been a big focus on companies that make artificial intelligence chips,” he said. “But I don’t think there’s been enough focus on suppliers for artificial intelligence.” That includes Teradyne.
“Our analyst team has called out its focus on cutting-edge semiconductors. And it has a great customer base.”
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