3 of the Best Stocks to Spend Your Tax Refund On

According to recent numbers from the IRS, the average tax refund in 2023 is just shy of $2,000. What will people do with their cash windfalls this year? Some will pay down credit card debt or put money towards outstanding loans. Others will shore up their emergency funds. Still others may make home improvements, or splurge on a getaway.

Of course at Morningstar, we suggest that investors who don’t have pressing needs for their refunds invest that money for the long term. For most, a target-date fund held in an IRA or low-cost broad-based index fund or ETF in a taxable account are good choices. But some investors may prefer to invest their refunds in stocks. So today we’re sharing three stocks that are good choices to invest your tax refund in.

These stocks share a few qualities. First, they’re on Morningstar’s “Best Companies to Own” list. The companies that make up this list have significant competitive advantages that we think are stable or growing, predictable cash flows, and solid management teams. The stocks on our list today are also undervalued according to Morningstar metrics. And lastly, they’re low-priced, meaning that they’re trading at $30 or less and therefore well suited to investors with modest refund checks to invest.

3 of the Best Stocks to Spend Your Tax Refund on

These 4-star stocks look undervalued. Data as of March 6, 2023.

Ambev ABEV

Reckitt Benckiser Group RBGLY

James Hardie Industries JHX

The first stock on our list is Ambev ABEV. Ambev is the largest brewer in Latin America by volume and the fourth-largest beer producer in the world. In fact, the company holds several monopoly-like positions in large markets, including an 81% volume share in Argentina and a 68% share in Brazil. The business is highly profitable, thanks to management’s laser focus on cost management. Ambev stands to benefit from consumption growth opportunities in most of its core markets and from the long-term trend in these markets towards premium beers—in fact, we think Ambev’s competitive advantages are growing. We think Ambev stock is worth $3.50 per share.

Next is Reckitt Benckiser Group RBGLY. Reckitt’s portfolio includes a variety of household and consumer health brands, including Lysol, Finish, and Mucinex, and many of these brands hold the number-one or -two positions in their categories globally. The firm sells products in more than 200 countries, with about 35% of sales generated in emerging markets. We think its portfolio is well positioned in categories that will benefit from secular growth drivers across consumer health and hygiene, and the company holds an entrenched position with retailers. We think Reckitt stock is worth $16.80 per share.

The last stock on our list of best stocks to spend your tax refund on is James Hardie Industries JHX. James Hardie manufactures fiber cement-based building products, focusing largely on the residential construction industry. The company generates about 75% of its earnings in North America, where it has strong brand equity and meaningful cost advantages. In today’s strong inflationary environment, management remains focused on controlling costs. We think the company is undervalued based on our long-term midcycle housing starts forecast of 1.1 million, which represents a more-normalized housing market. We think James Hardie stock is worth $26.50 per share.

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

Morningstar director Philip Gorham and analysts Trevor Huynh and Diana Radu provided the research behind this segment.

Watch “5 Cheap Real Estate Stocks to Buy” for more from Susan Dziubinski.