2 of the Most Undervalued Stocks for the Long Term

Susan Dziubinski: Hi I’m Susan Dziubinski with Morningstar.

Despite some recent choppiness, the U.S. stock market has done very well so far this year. But the market rally hasn’t been that even, leaving many stocks still undervalued.

Today, we’re looking at two deeply undervalued stocks of companies that have established competitive advantages—or as we say at Morningstar, companies that have carved out economic moats. But despite the moatiness of their businesses, the stocks of these two companies are among the most undervalued names that our analysts cover, with both stocks trading about 60% below our fair value estimates. Given their valuations, we think these stocks are buys today, but only for investors with long-term mindsets.

2 of the Most Undervalued Stocks for the Long Term

1. VF Corp VF
2. Lyft LYFT

The first stock on our list is VF Corp VF. VF maintains a portfolio of solid brands that it has grown over time through multiple acquisitions. And it’s the strength of three of those brands in particular, Vans, Timberland, and The North Face, that underpin our narrow economic moat rating. Now, the company is having a tough 2023: The uncertain economy and low demand for workwear has led to a slump in sales. Plus, after increasing its dividend for more than 50 years, VF slashed its dividend by 40% earlier this year due to inconsistent results and a tax payment that needed to be funded. However, despite short-term economic concerns, Morningstar expects VF to grow faster than most of its competitors and maintain its competitive edge over time. Morningstar also anticipates that consistent annual dividend increases will resume. We think shares are worth $60 each.

The second deeply undervalued stock on our list is Lyft LYFT. Lyft is the number-two ride-sharing player in the United States. Morningstar thinks Lyft has carved out a narrow economic moat, thanks to the network effect between drivers and riders that the company enjoys. We also think the driver and rider data that Lyft has accumulated is valuable, and that it would be hard for newcomers to the ride-sharing space to replicate. Ultimately, we think these moat sources will lift the company to profitability. And as Lyft makes headway toward profitability, we think it may be an attractive acquisition target. We think shares are worth $25 per share.

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

Morningstar senior analysts Ali Mogharabi and David Swartz provided the research behind this segment.

Watch “3 Expensive Wide-Moat Stocks to Avoid” for more from Susan Dziubinski.