2 Undervalued Stocks in an Overvalued Market

By Morningstar's estimate, the market is overvalued today. But that doesn't mean bargains can't be found. Here are two undervalued ideas our analysts are excited about.

The first is BioMarin Pharmaceutical. We think the market has overreacted to the delayed launch of the firm's hemophilia A gene therapy. We think data supports the drug's safety and efficacy, and we expect the drug to launch in 2022 rather than in 2020. In addition, the parent's orphan-drug portfolio and strong late-stage pipeline continue to support a narrow economic moat rating. Lastly, BioMarin is far ahead of its competitors in developing a drug for treating achondroplasia, which has no approved treatments.

We believe shares of Herc present opportunity, too, as investors have overlooked its strength and industry tailwinds. As the third-largest equipment rental company in North America, it should continue to take market share from local firms that dominate in many areas. Customers who understand the value of their time will appreciate the greater equipment availability, superior logistics, and robust customer-facing technology Herc offers, which smaller firms can't replicate. Despite the upheaval related to the pandemic, the North America rental industry remains strong as key customers have avoided lockdowns and are unaffected by the COVID-19 precautions.

Sector strategist Karen Andersen and analyst Scott Pope provided the analysis for this report.