Once a week, we look at U.S.-listed stocks that Morningstar covers, searching for newly undervalued options. In the week ending April 10, 13 stocks received upgrades to a four-star rating, and five stocks joined the group of 78 that earned a five-star rating.
The five new stocks rated five stars, listed by market capitalization, are as follows:
- ServiceNow
- VEEV System
- Guidewire Software
- Elastic
- Blackbaud
All returns mentioned are in the respective stock’s base currency, with data sourced from Morningstar Direct.
What is the Morningstar Rating for Stocks?
Morningstar Ratings help clarify market conditions, guiding investors toward stocks that may be undervalued or overvalued. The ratings hinge on three primary factors: stock price, stock price, and stock price—essentially, the intrinsic value estimate from Morningstar. A four or five-star rating indicates an undervalued stock, while a three-star rating suggests fair value, and one or two stars highlight an overvalued stock.
Latest Stock Valuation Trends
As of April 10, the Morningstar US Market Index rose 3.50%. The U.S. stock market appears moderately undervalued, currently priced at a 9% discount compared to fair value estimates.
Of the 829 U.S.-listed stocks tracked by Morningstar analysts:
- 42% are marked as undervalued, 38% fairly valued, and 20% overvalued.
- 13 stocks are now considered undervalued.
- 31 stocks are dubbed overrated.
- Five stocks improved from a 4-star to a 5-star rating.
- Seven companies dropped from 5-star to 4-star ratings.
- No newly undervalued stocks advanced from 3-star to 5-star ratings.
- 24 stocks have now lost their undervalued status.
This Week’s New 5-Star Stock Indicators
ServiceNow
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $165
- Uncertainty Rating: High
ServiceNow’s stock has decreased by 18.63% over the last week, pushing its rating from 4 to 5 stars. It has dropped 41.47% in the past three months and 47.03% over the past year. Currently, it’s trading at a 50% discount compared to its estimated fair value of $165, with a high uncertainty rating. ServiceNow is a large and expanding company with a narrow economic moat.
VEEV System
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $287
- Uncertainty Rating: High
Veeva Systems experienced a fall of 12.96% last week, prompting an upgrade from 4 stars to 5 stars. Its price has dropped 36.94% in the past three months and 28.11% in the last year. The stock is currently 47% below the estimated fair value of $287, coupled with a high uncertainty rating. Veeva is categorized as a medium-growth stock with a wide economic moat.
Guidewire Software
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $220
- Uncertainty Rating: High
Guidewire Software has decreased by 21.78% in the last week, leading to a rating shift from 4 to 5 stars. It’s down 36.31% over the past three months and 37.12% over one year, trading at a 46% discount to the estimated fair value of $220. The stock also holds a high uncertainty rating and is classified as a small, growing company with a wide financial moat.
Elastic
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $77
- Uncertainty Rating: High
Elastic’s stock dropped 14.55% over the past week, earning an upgrade to a 5-star rating. The stock has seen a decline of 44.92% in three months and 45.04% in a year. Currently being 44% below the expected fair value of $77, it carries a high uncertainty rating. It’s categorized as a small-cap core stock lacking an economic moat.
Blackbaud
- Morningstar Rating: ★★★★★
- Fair Value Estimate: $74
- Uncertainty Rating: Very High
Blackbaud’s shares fell by 9.89% last week, leading to a rating increase from 4 to 5 stars. Over three months, the stock has decreased by 44.91% and by 43.07% in a year. It’s trading at a 54% discount to its estimated fair value of $74, with a very high uncertainty rating. This is a small company with a narrow economic moat.
