Hi, I'm Dave Sekera, the chief U.S. market strategist here at Morningstar.
The slowing rate of economic growth, tightening monetary policy, high inflation, and rising interest rates have all led to a steep selloff across the stock market in the second quarter.
According to a composite of the nearly 700 stocks that we cover that trade in the U.S., we view the broad U.S. market as now being undervalued, trading at a 17% discount to our aggregated fair value.
Nowhere is this more evident than the communications sector, which has been the hardest-hit this year. Over the first half of 2022, the communications sector has fallen 31% as compared to the 21% decline across the broad stock market.
Based on the fair values of the stocks in this sector, we calculate that communications is trading at a 37% discount to our valuations.
3 Top Stocks to Buy in Q3 2022
These three household names are considered undervalued. Data as of Aug. 9.
- Disney DIS
- Comcast CMCSA
- Meta Platforms META
3 Undervalued Stock Picks: Disney, Comcast, and Meta
While there's a large number and wide variety of companies in the communications sector, there are three wide-moat-rated companies trading at significant discounts that we find particularly attractive. Those are Disney, Comcast, and Meta.
Disney is currently rated 5 stars and is trading at over a 40% discount to our fair value. Media companies, including Disney, are in the midst of rolling out their content on to their own streaming platforms. This has led to a short-term disruption in performance, but we think Disney remains the best-situated traditional media firm to navigate the transition to streaming.
Comcast, also rated 5 stars, is trading at a 33% discount to fair value. Comcast has been under pressure from slowing broadband consumer growth and concerns surrounding increased content costs. However, we still forecast that Comcast will grow broadband revenue through the combination of modest consumer additions and solid pricing power.
Finally, Meta is rated 5 stars and trades at almost a 60% discount to our fair value. We think the market is being overly pessimistic regarding the decrease in ad prices following privacy measures rolled out by Apple. In our view, with its large and still growing user base, Meta remains one of the premium platforms for long-term secular growth in digital advertising.
For greater detail on our analysis for any of these stocks and the other companies that we cover, please visit Morningstar.com.
Dave Sekera talks about more undervalued stocks in "Where to Invest Your Money in Q3 2022."