3 Cheap Stocks to Buy That the Best Value Managers Own

Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar. To generate new stock ideas, we frequently dig into the portfolios of the industry’s best concentrated fund managers. Concentrated fund managers invest in fewer stocks than other managers, which means they’re choosy about what they buy. And when they buy, they typically have high conviction in their purchases.

Specifically, we’ve looked at stocks that appear prominently in the portfolios of the Gold-rated concentrated funds in Morningstar’s large-value category. We’ve isolated three stocks from the group that look undervalued today. They’re all attractive stocks to buy.

The first cheap stock that the best value managers own is Comcast CMCSA. Comcast’s core cable business enjoys significant competitive advantages that we expect will endure for two decades or longer; that’s why Morningstar awards Comcast a wide economic moat rating. We’re expecting modest growth but strong cash flows from Comcast for the foreseeable future. Our key assumption is that Comcast will hold on to its position as a dominant internet access provider—and that will provide a solid foundation upon which the company can build customer relationships and deliver pricing power. We think Comcast stock is worth $60.

The next cheap stock that the best value managers own is Charles Schwab SCHW. Schwab operates in brokerage, wealth management, banking, and asset-management businesses. We assign Schwab a wide economic moat rating, thanks to its massive scale and cost efficiencies. After interest rates reset, we expect Schwab to have many years of double-digit earnings growth. In the meantime, growth is less certain for the company, because interest rates are a key factor, with interest-rate-related revenue representing more than 50% of net revenue last quarter. While falling interest rates would be a headwind for earnings, they would be a positive for the company’s capital position. We think Schwab stock is worth $80.

Our final cheap stock top value managers own is Alphabet GOOGL. We expect the company to experience continuing search growth, despite Microsoft’s move to include generative AI in Bing and Google’s recent AI missteps. We also think the company’s YouTube and cloud businesses will contribute more to the top and bottom lines. From our perspective, the company has established durable competitive advantages, and we assign Alphabet a wide economic moat rating. We think Alphabet stock is worth $171 per share.

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Morningstar directors Mike Hodel and Michael Wong provided the research behind this segment.