Growth stocks had a sizable performance advantage over value stocks in 2023: The Morningstar US Growth Index outperformed the Morningstar US Value Index by more than 26 percentage points for the year. Growth stocks continue to outperform value in 2024 by nearly 4 percentage points for the year to date.
Are growth stocks overpriced today?
Anything related to artificial intelligence continued to surge higher so far this year, says Morningstar chief US market strategist Dave Sekera. “However, based on our valuations, we suspect that the preponderance of this outperformance is behind us. As of June 21, growth stocks are trading at an 8% premium to a composite of our stock coverage, while value stocks remain attractively priced at a 10% discount to our valuations.
“Looking forward, we think long-term investors will be better off paring down those positions in growth stocks that are becoming overextended and reinvesting those proceeds into value stocks that trade at an attractive margin of safety from their intrinsic valuations.”
We’ve put together a list of the best value stocks to buy for the long term, using these criteria:
- The stocks land in the value portion of the Morningstar Style Box.
- The stocks are from companies included on Morningstar’s list of the Best Companies to Own for 2024. Companies on this list have wide Morningstar Economic Moat Ratings and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
- The stocks are cheap, which means they’re trading below Morningstar’s fair value estimates.
10 Best Value Stocks to Buy for the Long Term
The 10 cheapest value stocks from Morningstar’s Best Companies to Own list as of June 25, 2024, were:
- Polaris PII
- British American Tobacco BTI
- Pfizer PFE
- Bristol-Myers Squibb BMY
- Comcast CMCSA
- Gilead Sciences GILD
- Campbell Soup CPB
- U.S. Bancorp USB
- Toronto-Dominion Bank TD
- United Parcel Service UPS
Here’s a little bit about each of these value stocks for the long term. Data is as of June 25.
Polaris
- Price/Fair Value: 0.53
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Small Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Recreational Vehicles
New to our list of best value stocks to buy this month, Polaris stock PII is trading 47% below our fair value estimate and tops our list of the best value stocks to buy for the long term. Polaris is one of the longest-operating brands in powersports. Around 70 years ago, the company started to build its reputation and brand by producing snowmobiles. In the decades since, the company has expanded into all-terrain vehicles, motorcycles, boats, and electric vehicles, building a recreational and utility vehicle powerhouse. We think Polaris stands to capitalize on its research and development, solid quality, operational excellence, and acquisition strategy, says Morningstar senior analyst Jaime Katz. However, peers are innovating more quickly than in the past, which could jeopardize the firm’s ability to take price and share consistently, particularly in periods of inflated recalls or aggressive industry discounting. We think Polaris stock is worth US$145 per share.
British American Tobacco
- Price/Fair Value: 0.66
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
British American Tobacco stock BTI is trading 34% below our fair value estimate of US$49 per share. 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 products, says Morningstar strategist Kristoffer Inton. We forecast tobacco volumes to decline about 4% annually through 2028, but we expect price increases and incremental revenue from next-generation products to offset the volume declines.
Pfizer
- Price/Fair Value: 0.67
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
Pfizer PFE, which is trading at a 33% discount to our fair value estimate, is the first stock on our list from a sector that some may not associate with value: healthcare. But like many Big Pharma stocks, Pfizer lands in the value portion of the style box. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover. Given the firm’s recent oncology research and development presentation that showed a strong lineup of new potential blockbusters, we also think the market appears to underappreciate the company’s pipeline, he adds. We think Pfizer stock is worth US$42 per share.
Bristol-Myers Squibb
- Price/Fair Value: 0.67
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Drug Manufacturers—General
The second drug manufacturer on our list of the best value stocks to buy for the long term, Bristol-Myers Squibb stock BMY is trading 33% below our fair value estimate of $63 per share. Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. The firm has brought in partners to share the development costs and diversify the risks of clinical and regulatory failure. “We believe the cardiovascular partnership with Pfizer represents one of the most important partnerships,” says Morningstar’s Conover. Bristol is aggressively repositioning itself to expand through challenging patent losses, with an effort to focus on the high-margin specialty drug group.
Comcast
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Telecom Services
Comcast stock CMCSA is trading 31% below our fair value estimate. Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. We nevertheless think Comcast will be able to limit broadband share losses in the coming years while enjoying solid pricing power, says Morningstar director Mike Hodel. Comcast’s cable business has steadily gained broadband market share over the past 20 years as high-quality internet access has become a staple utility. Overall, we expect that Comcast will deliver only modest growth but with strong cash flow for the foreseeable future. We assign the stock a fair value estimate of US$56 per share.
Gilead Sciences
- Price/Fair Value: 0.72
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
Another cheap healthcare stock landing in the value portion of the style box, Gilead stock GILD is trading 28% below our US$97 fair value estimate. We think investors underappreciate the stability of the firm’s HIV foundation and the growth potential of the firm’s oncology portfolio and pipeline, says Morningstar strategist Karen Andersen. Its portfolio and pipeline support a wide moat, but Gilead needs HCV market stabilization, strong continued innovation in HIV, solid pipeline data, and smart future acquisitions to return to growth. We think Gilead should generate low-single-digit growth annually over the next few years, she adds.
Campbell Soup
- Price/Fair Value: 0.72
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Mid-Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Packaged Foods
Campbell Soup CPB stock is trading 28% below our US$61 fair value estimate. The company 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, observes Morningstar director Erin Lash. By leveraging technology, data insights, and artificial intelligence, the company brings products that consumers value to the shelf in a timely fashion. “We believe Campbell remains committed to extracting inefficiencies from its supply chain and distribution network, optimizing direct-to-store routes, and investing in automation,” she adds. Over the next decade, we’re forecasting low-single-digit annual sales growth and high-single-digit adjusted average earnings per share growth.
U.S. Bancorp
- Price/Fair Value: 0.76
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Banks—Regional
U.S. Bancorp USB stock trades 24% below our fair value estimate of US$53 per share. U.S. Bancorp is one of the most profitable regional banks we cover, says Morningstar director Michael Wong. The bank has a national scale and a unique mix of fee-generating businesses, including payments, corporate trust, wealth management, and mortgage banking, all while avoiding investment banking. We think its management team has done an exemplary job of allocating capital, Wong adds. Its latest strategy has been to focus on its payments ecosystem, expand its branch footprint, and pursue new acquisitions and partnerships.
Toronto-Dominion Bank
- Price/Fair Value: 0.83
- Morningstar Uncertainty Rating: Low
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Banks—Diversified
Toronto-Dominion TD is one of the two largest banks in Canada by assets and one of six that collectively hold roughly 90% of the nation’s banking deposits. Toronto-Dominion has done an admirable job of focusing on its Canadian retail operations and growing into the number-one or -two market share for most key products in this segment, says Morningstar analyst Michael Miller. Toronto-Dominion should remain one of the dominant Canadian banks for years to come, he adds. Toronto-Dominion has also established a significant presence in the US by having the most branches in the US among Canadian banks as well as a 12% ownership stake in Charles Schwab SCHW. Toronto-Dominion Bank stock trades 17% below our fair value estimate of US$66 per share.
United Parcel Service
- Price/Fair Value: 0.85
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Integrated Freight and Logistics
Rounding out our best value stocks to buy for the long term is a newcomer to the list, United Parcel Service. UPS is the giant among global small-parcel delivery companies, and it’s one of three commercial providers that dominate the landscape alongside FedEx FDX in the United States and DHL Express DHLGY in Europe. UPS has historically produced operating margins above those of its competitors on average, thanks in large part to its superior package density—it’s been around much longer than FedEx in the US ground market. Favorable e-commerce trends should remain a longer-term top-line tailwind for UPS’ US ground and express package businesses, says Morningstar senior analyst Matthew Young. That said, growth won’t be costless; UPS is attempting to mitigate the challenges of painful wage hikes from its new union contract, ratified in September 2023, and a rising mix of lower-margin business-to-consumer deliveries. UPS stock trades 15% below Morningstar’s fair value estimate of US$158 per share.
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