Surging interest rates have put a dent on earnings, with blended second-quarter profits for the S&P 500 tumbling 5.2% from a year earlier.
“Blended” refers to earnings already reported and forecasts for earnings that haven’t yet been released. The computations come from FactSet, as of Aug. 4, when 84% of S&P 500 companies had reported.
But not every company sagged. So Morningstar put together a list of stocks that it considers undervalued and that beat profit expectations by 10% or more and revenue expectations by 5% or more in the second quarter. The firm measures undervaluation according to its fair value estimates.
Only 10 companies made the list. Here it is, starting with the most undervalued stock as of Aug. 20.
1. Aptiv (APTV) -), an Ireland-based auto parts maker
Morningstar moat (durable competitive advantage): narrow. Morningstar fair value estimate: $164. Monday price quote: $99.60.
“We expect Aptiv's average yearly revenue growth to exceed average annual growth in global light-vehicle demand by high-single-digit to low-double-digit percentage points,” wrote Morningstar analyst Richard Hilgert.
“The company provides automakers with components and systems that are in high demand from consumers and that government regulation requires to be installed.”
2. Ionis Pharmaceuticals (IONS) -), a biotechnology company
Morningstar moat: narrow. Morningstar fair value estimate: $62. Monday price quote: $40.75.
“Ionis is a leader in RNA-based therapies, and its spinal muscular atrophy drug Spinraza, marketed by partner Biogen, is the first RNA-based therapy to achieve blockbuster status,” wrote Morningstar analyst Karen Andersen.
“Ionis has built a massive pipeline of promising new drugs that are rapidly moving toward the market.”
3. GSK (GSK) -), the U.K. pharmaceutical giant
Morningstar moat: wide. Morningstar fair value estimate: $54. Monday price quote: $35
“The market doesn’t fully appreciate the growth potential of the firm’s key innovative products,” wrote Morningstar analyst Damien Conover.
“We expect GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade. On the pipeline front, GSK has shifted from its historical strategy of targeting slight enhancements toward true innovation.”
4. Western Union (WU) -), the money transfer company
Morningstar moat: narrow. Morningstar fair value estimate: $17. Monday price quote: $12.20
5. Lazard (LAZ) -), an investment bank
Morningstar moat: narrow. Morningstar fair value estimate: $45. Monday price quote: $33.40
6. M&T Bank (MTB) -)
Morningstar moat: narrow. Morningstar fair value estimate: $169. Monday price quote: $127.60.
7. Live Nation Entertainment (LYV) -), the live entertainment owner/operator/booker
Morningstar moat: narrow. Morningstar fair value estimate: $105. Monday price quote: $84.80.
8. Gentex (GNTX) -), an automotive technology company
Morningstar moat: narrow. Morningstar fair value estimate: $38. Monday price quote: $32.20.
9. Allison Transmission (ALSN) -), an automotive transmission maker.
Morningstar moat: narrow. Morningstar fair value estimate: $66. Monday price quote: $59.35.
10. Public Service Enterprise Group (PEG) -), a utility.
Morningstar moat: narrow. Morningstar fair value estimate: $65. Monday price quote: $61.15.
The author of this story owns shares of Public Service Enterprise Group.
