3 Cheap Value Stocks for 2023

Susan Dziubinski: After years of lagging growth stocks, value stocks staged a comeback—a big comeback—in 2022. The Morningstar US Value Index outperformed the Morningstar US Growth Index by nearly 36 percentage points last year. Whether value stocks will maintain their momentum in 2023 is anyone’s guess, but investors interested in adding some value stocks to their portfolios might consider value stocks that are trading below what they’re worth – in other words, looking for value stocks that are still undervalued today. Here are three value stocks that are among Morningstar analysts’ top picks for the first quarter of 2023.

3 Cheap Value Stocks for 2023

These 5-star stocks are considered undervalued.

1. Celanese CE
2. Hanesbrands HBI
3. Citigroup C

The first undervalued value stock on our list is from the basic materials sector—it’s Celanese CE. Celanese is our top pick to play elevated commodity chemical prices. Why? Celanese is a low-cost producer of commodity chemicals, as most of the company’s production is made from U.S. natural gas feedstock. The company is well positioned to benefit from the long-term recovery of the global auto market, too, as it recently acquired the majority of DuPont’s mobility and materials portfolios, making autos its largest end market. We think shares are worth $160 each.

Our next value-stock pick is a consumer cyclical stock, Hanesbrands HBI. When it comes to Hanesbrands, we think the market has been overly concerned about short-term issues, like the impact of inflation, the strong U.S. dollar, and supply chain issues. We think investors are underestimating the company’s strengths, including the popularity of its Champion brand, the improving shift in its brand mix, and the company’s fine free cash flow. We’re also optimistic that the company’s long-term strategic plan to boost Champion and innerwear, to operate more efficiently, and to better engage consumers will improve profitability. We assign Hanesbrands’ stock a $22 fair value.

Our final undervalued value stock hails from the financial services sector; it’s Citigroup C. Citi is the most undervalued traditional U.S. bank that Morningstar’s analysts cover. The bank is shedding its nonperforming assets, refocusing its operations, and working through consent orders from regulators. It’s also building up capital in response to higher capital requirements and bracing for a possible global recession. But although the bank is facing headwinds, we think a recovery in card balances and the bank’s institutional clients group business will drive revenue growth. We think shares are worth $75.

For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar directors Brian Bernard, Erin Lash and David Wong, strategists Eric Compton and Seth Goldstein, and analyst David Swartz provided the research behind this segment.

Watch 3 Stocks Top Managers Are Selling for more from Susan Dziubinski.