Every week, we assess U.S.-listed stocks that Morningstar covers for newly undervalued stocks—those whose prices have recently dropped into a range that earns a 4- or 5-star Morningstar rating. For the week that ended on October 24, five stocks were upgraded to a four-star rating, and one stock made its way into the five-star category.
The newly rated four-star stocks, in order of market capitalization, are:
- Alphabet
- Oracle
- BNP Paribas
- Moody’s
- Baidu
As for the ratings, all returns mentioned are in the stock’s base currency, and the data comes from Morningstar Direct.
Understanding the Morningstar Rating for Stocks
The Morningstar Ratings for stocks are designed to help investors cut through the market’s noise and identify those stocks that are genuinely undervalued. These ratings are based on three key factors: the stock’s price, an estimate of its fair value, and an assessment of uncertainty, which looks at the range of possible outcomes for that fair value estimate. Stocks rated with 4 or 5 stars are deemed undervalued, while those at 3 stars represent good value, and stocks with 1 or 2 stars are considered overpriced.
Latest Trends in Stock Valuation
The Morningstar US Market Index rose by 1.97% over the last week as of October 24. Nevertheless, the U.S. stock market as a whole appears to be moderately overvalued, currently trading at a 6% premium to market capitalization-weighted fair value estimates.
Of the 841 U.S.-listed stocks that Morningstar analysts cover, the breakdown is as follows:
- 34% are undervalued,
- 41% are highly valued,
- 25% are overvalued.
- Five stocks are newly categorized as undervalued.
- Eight stocks are newly considered overvalued.
- One stock’s rating improved from 4 stars to 5 stars.
- Four stocks dropped from 5-star ratings to 4-star ratings.
- No newly undervalued stocks shifted from a 3-star to a 5-star rating.
- 21 stocks are no longer deemed undervalued.
New 4-Star Stock Metrics
Alphabet
- Morningstar Rating: ★★★★
- Fair value estimate: $300.00
- Uncertainty rating: Medium
Alphabet, the internet content company, rose by 2.61% over the past week and upgraded its rating from 3 to 4 stars. Over three months, the stock increased by 35.38% and by 60.44% in the last year. Its fair value estimate has climbed to $300 from $237, placing its stock at a 13% discount to this new fair value, aligned with a Moderate Uncertainty Rating.
Oracle
- Morningstar Rating: ★★★★
- Fair value estimate: $340.00
- Uncertainty rating: High
Oracle’s stock fell by 2.74% last week but improved from 3 stars to 4 stars in rating. It increased by 16.87% in three months and 64.13% in the last year. Currently, it trades at a 17% discount to an estimated fair value of $340 per share, bearing a high uncertainty rating.
BNP Paribas
- Morningstar Rating: ★★★★
- Fair value estimate: $52.00
- Uncertainty rating: High
This regional bank’s stock dropped by 9.95% last week, updating its rating from 3 to 4 stars. The stock saw an 11.07% decrease over the past three months while gaining 23.40% over the year. It now sits 24% below its estimated fair value of $52.
Moody’s
- Morningstar Rating: ★★★★
- Fair value estimate: $550.00
- Uncertainty rating: Medium
Moody’s financial data firm raised its rating by 4.20% over the past week, moving from 3 stars to 4 stars. It has decreased by 4.17% over three months but is up by 5.89% annually. The new fair value estimate is $550, up from $530, leading to an 11% discount at close of the week.
Baidu
- Morningstar Rating: ★★★★
- Fair value estimate: $146.00
- Uncertainty rating: High
Baidu’s stock prices improved by 2.29% recently, leading to an upgrade from 3 to 4 stars. Over the past three months, the stock is up 34.92% and 37.19% for the year. It trades at a 16% discount relative to its fair value estimate of $146.
This Week’s New 5-Star Stock Metrics
Roche
- Morningstar Rating: ★★★★★
- Fair value estimate: $57.00
- Uncertainty rating: Low
Roche transitioned from a 4-star to a 5-star rating after a 5.88% drop in stock price last week. Its stock has risen by 2.00% in the past three months and 7.86% in the last year. The fair value estimate moved up to $57 from $55, closing at a 26% discount.
