2 of the Best Undervalued Stocks to Buy in a Top-Performing Sector
These overlooked stocks in a hot sector may not fly under the radar for much longer.
Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Large-cap technology stocks—particularly those perceived as being the best plays on artificial intelligence—have led the market this year. So, it’s no surprise that heading into the second half of 2024, the tech sector looks overvalued.
But that doesn’t mean there aren’t any opportunities left in the tech sector. Today, we’re looking at two undervalued technology stocks that are top picks among Morningstar’s analysts at the start of the third quarter.
2 of the Best Undervalued Stocks to Buy in a Top-Performing Sector
The first best undervalued tech stock to buy is Fortinet. Fortinet is a leader in cybersecurity, offering solutions from network security firewalls to security operations. Morningstar expects the company to benefit from growing security needs and vendor consolidation as cyber threats become more complex and enterprises seek comprehensive security platforms over isolated point solutions. Morningstar thinks the company has carved out a wide economic moat, thanks primarily to high customer switching costs. We forecast Fortinet’s revenue growing at a 14% compound annual growth rate over the next five years. We think Fortinet stock is worth $77 per share.
The other best undervalued tech stock to buy is STMicroelectronics. ST is one of Europe’s largest chipmakers and holds one of the broadest product portfolios in the industry. Morningstar thinks the company has carved out a narrow moat, thanks to intangible assets stemming from its design expertise and customer switching costs. Morningstar expects significant industrial weakness and a sluggish first half of 2024 in automotive chip revenue, but we anticipate a recovery in 2025. Longer term, Morningstar models average annual midcycle growth of 5%. We think ST stock is worth $60 per share.
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Morningstar strategist Brian Colello and analyst Malik Ahmed Khan provided the research behind this segment.
Watch 3 Smaller-Company Stocks the Best Fund Managers Are Buying for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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