The US market looks expensive, so investors may be wondering which stocks to buy now against this backdrop.
Regardless of where the markets 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—December 2024
The 10 most undervalued stocks from our Best Companies to Own list as of Nov. 29, 2024, were:
- Estee Lauder EL
- GSK GSK
- Anheuser-Busch InBev BUD
- Huntington Ingalls HII
- Yum China YUMC
- Pfizer PFE
- Polaris PII
- Rentokil Initial RTO
- Ambev ABEV
- Roche Holding RHHBY
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 Nov. 29.
Estee Lauder
- Price/Fair Value: 0.45
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Household and Personal Products
Estee Lauder tops our list of best stocks to buy again this month. With brands that include its namesake, Clinique, and Aveda, Estee Lauder is a leading provider of premium beauty products that has a strong presence across both brick-and-mortar and digital channels. We expect the company to benefit from a consumer shift in both developed and emerging markets toward higher-end beauty brands, explains Morningstar analyst Dan Su. However, we see risks on the horizon. Estee Lauder’s premium products are exposed to macro cyclicality as consumers tend to trade down or delay their higher-ticket discretionary spending amid recession concerns. In addition, the company may need some time to refresh its lackluster cosmetics portfolio. Estee Lauder stock is trading 55% below our fair value estimate of $162 per share.
GSK
- Price/Fair Value: 0.59
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
GSK is the first of three drug manufacturers to make our list of best stocks to buy. The firm’s innovative new product lineup and expansive list of patent-protected drugs create a wide economic moat, says Morningstar senior analyst Jay Lee, as GSK’s diverse drug portfolio insulates the company from problems with any one product. The strong product pipeline at GSK stems from a shift in strategy; the firm had previously targeted slight enhancements but now focuses on true innovation. We expect GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade. GSK stock trades 41% below our fair value estimate of $58 per share.
Anheuser-Busch InBev
- Price/Fair Value: 0.60
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Beverages—Brewers
Anheuser-Busch InBev has built a vast global scale and regional density through past acquisitions like Grupo Modelo and SABMiller. The brewer’s strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business, observes Morningstar analyst Verushka Shetty. “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” she adds. The brewer’s free cash flow conversion has been consistently higher than peers’ in recent years, but it needs to continue to deleverage its balance sheet to reduce its earnings volatility. AB InBev stock trades 40% below our fair value estimate of $90 per share.
Huntington Ingalls
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Aerospace and Defense
Huntington Ingalls is new to our list of best stocks to buy now. The company is the largest independent military shipbuilder in the US, spun off of Northrop Grumman NOC in 2011. While defense contractors tend to have relatively slow growth, the nature of the industry allows them to deliver a lot of cash to shareholders. Huntington Ingalls derives practically all of its profits from building ships for the US Navy. Each vessel takes years to manufacture, remains in service for decades, and is typically purchased in blocks to reduce unit costs. Morningstar analyst Nic Owens points out that these long lead times mean that funding for a project is difficult to cut, and block purchases give the builder visibility into long-term revenue. “Huntington Ingalls’ top line is, therefore, less sensitive to changes in the defense budget than peers, making it a defensive play even among defense contractors,” he argues. Huntington Ingalls stock trades at a 39% discount to our fair value estimate of $326 per share.
Yum China
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Restaurants
Yum China’s stock is 39% undervalued relative to our fair value estimate of $76 per share. The restaurant sector in China continues to face challenges because of the real estate downturn and a lack of significant economic stimulus, but Morningstar senior analyst Ivan Su believes Yum China has opportunities for restaurant expansion in China’s fast-food industry. Over the longer term, we believe there are several opportunities for Yum China to gain a share in the fragmented $700 billion Chinese restaurant market. Our conviction in rising fast-food penetration is underpinned by three long-term secular trends: the increasing number of office workers, rising disposable incomes, and shrinking family sizes.
Pfizer
- Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
A household name among drug manufacturers, Pfizer’s stock is currently trading at a 38% discount to its fair value estimate. The firm has strong cash flows generated from a basket of diverse drugs, says Morningstar director Karen Andersen. Further, the company’s large size confers significant competitive advantages in developing new drugs. We expect steady growth until 2028 when patent losses will likely increase, but pipeline advancements hold the potential to mitigate pressures. We think Pfizer stock is worth $42 per share.
Polaris
- Price/fair value: 0.63
- Fair value uncertainty: Medium
- Capital Allocation Rating: Exemplary
- Industry: Recreational Vehicles
Polaris stock trades 37% below our fair value estimate of $110 per share. Polaris is one of the longest-operating brands in powersports. The company started to build its reputation and brand by producing snowmobiles and has since 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. Peers are innovating more quickly than in the past, however, which could jeopardize the firm’s ability to take price and share consistently. Still, with supply chain constraints largely in the rearview mirror, we expect incremental improvement in market share for Polaris moving forward.
Rentokil Initial
- Price/Fair Value: 0.63
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Specialty Business Services
Rentokil Initial’s strategy is sharply focused on the attainment and maintenance of market share leadership in the highly localized pest-control and hygiene-services markets it competes in. Rentokil Initial has completed over 200 acquisitions since 2015, focusing on acquisition targets that build the geographic density of its customers. The late-2022 acquisition of Terminix Global Holdings was a transformative and moat-reinforcing deal and created a new US market share leader, says Morningstar senior analyst Grant Slade. The successful execution of the M&A strategy has delivered a durable cost advantage for the pest-control business. With a number of other multinational players also actively acquiring pest-control targets to amass scale, Rentokil Initial’s strategy reinforces its superior cost position. Rentokil Initial stock trades at a 37% discount to our fair value estimate of $40.30 per share.
Ambev
- Price/Fair Value: 0.66
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Beverages—Brewers
Ambev, a subsidiary of Anheuser-Busch InBev, is the largest brewer in Latin America and the Caribbean. It produces, distributes, and sells beer and PepsiCo products in Brazil and other Latin American countries and owns Argentina‘s largest brewer, Quinsa. “We estimate the company faced around BRL 3 billion in higher raw material costs in 2022,” says Morningstar’s Shetty, “and a reversal of that by the end of 2024 would increase the gross margin by 3 percentage points, all else equal.” Shetty also points to premiumization as a long-term growth and margin driver. Ambev stock trades 34% below our fair value estimate of $3.23 per share.
Roche Holding
- Price/Fair Value: 0.66
- Morningstar Uncertainty Rating: Low
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Drug Manufacturers—General
Drug manufacturer Roche rounds out our list of the best companies to buy now. The company’s drug portfolio and industry-leading diagnostics provide significant competitive advantages and underpin our wide Morningstar Economic Moat Rating, says Morningstar’s 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. We expect its biologics focus and innovative pipeline to allow the firm to continue to achieve growth as current blockbusters face competition. Roche stock trades 34% below our fair value estimate of $55 per share.
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.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
