Investors have endured a lot of stock market volatility during the past few years. Given ongoing uncertainty about interest rates and the economy, investors may be wondering which stocks to buy now against this backdrop.
Regardless of where interest rates and the economy are headed, investors may want to own companies that offer some sense of certainty in terms of cash flows and company fundamentals. That’s where Morningstar’s Best Companies to Own list comes in. The companies that make up this list have significant competitive advantages. We believe the best companies have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions.
But the best companies aren’t always the best stocks to buy. How much an investor pays to own a company—best or otherwise—is important, too. So, here we’re focusing on the 10 best companies with the most undervalued stock prices today.
10 Best Stocks to Buy Now—January 2024
The 10 most undervalued stocks from our Best Companies to Own list as of Dec. 28, 2023, were:
- Yum China YUMC
- Roche Holding RHHBY
- British American Tobacco BTI
- Imperial Brands IMBBY
- Pfizer PFE
- GSK GSK
- Zimmer Biomet ZBH
- Campbell Soup CPB
- Corteva CTVA
- Anheuser-Busch InBev BUD
Here’s a little bit about why we like each of these companies at these prices, along with some key Morningstar metrics. All data is as of market close on Dec. 28, 2023.
2 Stocks to Buy Now to Play a Top Investing Trend in 2024
Yum China
- Price/Fair Value: 0.53
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Restaurants
Yum China’s stock is 47% undervalued relative to our fair value estimate of $80 and stays at the top of our list of best stocks to buy this month. Morningstar senior analyst Ivan Su argues that there’s reason to be confident about restaurant companies such as Yum China (whose brands include KFC, Pizza Hut, and Taco Bell, among others) that have the scale to be aggressive on pricing; that provide customers greater access via robust digital ordering, delivery, and drive-thru options; and that boast healthy balance sheets. We think the market is overlooking Yum China’s restaurant expansion opportunities in China’s growing fast-food industry.
Roche Holding
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Low
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Drug Manufacturers—General
Roche is the first of three drug manufacturers to make the list of the best companies to invest in now. The company’s drug portfolio and industry-leading diagnostics provide significant competitive advantages and underpin our wide Morningstar Economic Moat Rating, says Morningstar strategist Karen Andersen. “This Swiss healthcare giant is in a unique position to guide healthcare into a safer, more personalized, and more cost-effective endeavor,” she notes. With its biologics focus and innovative pipeline, we expect Roche to continue to achieve growth as its competitors face headwinds. We recently increased Roche’s fair value estimate to $59 from $56 after the company announced that it would acquire private biotech Carmot Therapeutics. Roche stock trades 39% below our fair value estimate.
British American Tobacco
- Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
The first Big Tobacco company on our list of the best companies to buy now, British American Tobacco stock is trading 38% below our fair value estimate of $47. The company recently announced it will record an impairment charge on its acquired U.S. cigarette brands. The market has reacted negatively, but we don’t see any reason to change the company’s fair value estimate, which already reflects a decline in cigarettes. While cigarettes will likely remain the driving force of profits in the industry for the next decade, British American Tobacco has been the most aggressive of the Big Tobacco makers with its push into new-generation products, with exposure to several emerging categories, including vaping, heated tobacco, and oral, says Morningstar strategist Philip Gorham.
Imperial Brands
- Price/Fair Value: 0.65
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
Imperial Brands stock trades 35% below our fair value estimate of $36 per share. Morningstar’s Gorham refers to this Big Tobacco company as a “fast follower” rather than a leader in most markets. As a result, the company is likely to be more exposed to cigarettes in the future relative to its peers, which are investing for growth and moving away from the secular decline in cigarettes. Gorham nevertheless says Imperial Brands should remain a highly profitable and cash-generative business. The company’s investment is focused on categories and geographies where Imperial has existing strengths and where consumer demand is likely to be strong.
Pfizer
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
Another household name among drug manufacturers is Pfizer, which is currently trading at a 31% discount to its fair value estimate. The company’s large size gives it significant competitive advantages in developing new drugs, and its diverse portfolio of drugs helps insulate the company from any one particular patent loss, says Morningstar director Damien Conover. We lowered our fair value estimate of Pfizer to $42 from $47 following lower-than-expected 2024 guidance. Despite the falling outlook, the firm reiterated support for the dividend, which we believe is secure and will likely support the stock valuation. While the company gave reduced guidance for COVID-19 product sales, it also announced cost-cutting plans that show the drug manufacturer’s ability to adapt to demand while supporting strong margins. With the stock’s pullback from the peak of the pandemic, we believe the market is underappreciating the tail potential of Pfizer’s COVID-19 sales and next-generation drugs.
GSK
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
One of the largest pharmaceutical and vaccine companies, GSK’s innovative new product lineup and expansive list of patent-protected drugs earn a wide moat rating, says Morningstar’s Conover. The magnitude of GSK’s reach is evidenced by a product portfolio that spans several therapeutic classes. The diverse platform insulates the company from problems with any single product. Additionally, the company has developed next-generation drugs in respiratory and HIV areas that should help mitigate both branded and generic competition. GSK reported solid earnings in the most recent quarter, and we think the market underappreciates the global growth potential for the company’s shingles and RSV vaccines. GSK stock trades 31% below our fair value estimate of $54 today.
Zimmer Biomet
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Medical Devices
Zimmer Biomet stock is trading 31% below our fair value estimate. Zimmer manufactures orthopedic reconstructive implants. We award the company a wide moat rating thanks in part to the high switching costs that orthopedic surgeons would face if they transitioned to another company’s instrumentation, says Morningstar senior analyst Debbie Wang. We were surprised by the CEO change announcement earlier this year, but considering how well the current business strategy is working, we don’t expect new management will bring wholesale changes, she adds. We think Zimmer Biomet stock is worth $175 per share.
Campbell Soup
- Price/Fair Value: 0.70
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Packaged Foods
Campbell Soup stock trades at a 30% discount to its fair value of $61. A leading packaged-food manufacturer, Campbell Soup earns a wide economic moat rating thanks to its cost advantages and brands, which include its namesake brand, Pace, Prego, and Swanson, among others. We think Campbell’s strategy is sound, as it leverages technology, data insights, and artificial intelligence to bring consumer-valued products to the shelf in a timely fashion, argues Morningstar director Erin Lash. We’re forecasting low-single-digit annual sales growth and high-single-digit adjusted average earnings per share growth over the next decade, she adds. Even as consumers scour the aisles for bargains and inflationary headwinds persist, Campbell seems to be living up to its mantra of being disciplined in its approach to promotions, and we think the leading domestic soup manufacturer will keep its eye on the long term.
Corteva
- Price/fair value: 0.72
- Fair value uncertainty: Medium
- Capital Allocation Rating: Standard
- Industry: Agricultural Inputs
Corteva, which was formed in 2019 when it was spun off from DowDuPont, is a leader in the development of new seed and crop chemicals products. Management issued revised 2023 guidance in October with a lower outlook owing to continued inventory destocking leading to lower sales volumes than the company had previously forecast. However, we view destocking as a near-term issue, says Morningstar strategist Seth Goldstein. We see no changes to Corteva’s competitive positioning or our long-term outlook that premium crop chemicals producers should see above-market growth in the coming years as farmers will continue to pay up for premium products that result in better pest management and higher crop yields. Corteva stock trades 28% below our fair value estimate of $67.
Anheuser-Busch InBev
- Price/Fair Value: 0.72
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Beverages—Brewers
Rounding out our list of the best companies to buy now is Anheuser-Busch InBev. The firm has built a vast global scale and regional density through past acquisitions like Grupo Modelo and SABMiller. AB InBev has a history of buying brands with promising growth platforms and then expanding distribution while squeezing costs from the businesses, which contributes to its Capital Allocation Rating of Exemplary. The brewer’s second-quarter performance in the United States was disastrous: The boycott around the marketing of Bud Light in the U.S. led to a loss in market share. There was more optimism in the third quarter, however, as management noted that Bud Light’s market share hasn’t worsened since April, reports Morningstar’s Gorham. We think there’s plenty of upside with the stock for patient investors. AB InBev stock trades 28% below our fair value estimate of $90.
Find More of the Best Stocks to Invest In
You can review all of the companies on our Best Companies to Own list and dig into our methodology, which includes definitions for the key Morningstar metrics included in this article. Those with specific interests can drill down with our Best International Companies to Own, Best Sustainable Companies to Own, and Best Innovative Companies to Own lists, too. And as we outline here, we suggest that you focus your research on the undervalued stocks of the companies on these lists.
