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—November 2024
The 10 most undervalued stocks from our Best Companies to Own list as of Oct. 30, 2024, were:
- Estee Lauder EL
- Yum China YUMC
- Rentokil Initial RTO
- Nike NKE
- Polaris PII
- Pfizer PFE
- GSK GSK
- British American Tobacco BTI
- Anheuser-Busch InBev BUD
- Ambev ABEV
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 Oct. 30.
Estee Lauder
- Price/Fair Value: 0.50
- 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 50% below our fair value estimate of $176 per share.
Yum China
- Price/Fair Value: 0.59
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Restaurants
Yum China’s stock is 41% 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 fallout and the absence of substantial 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: longer working hours for urban consumers, rapidly rising disposable income, and ever-smaller family sizes. Coupled with strong brand recognition and an unrivaled supply chain, Yum China is set to be the prime beneficiary of growing Chinese fast-food spending.
Rentokil Initial
- Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Specialty Business Services
Rentokil Initial is the only industrial company on our list of best companies to buy. The firm’s strategy is sharply focused on the attainment and maintenance of market share leadership in the highly localized pest-control and hygiene-service 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 38% discount to our fair value estimate of $40.30 per share.
Nike
- Price/Fair Value: 0.65
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Footwear and Accessories
The largest athletic footwear brand in all major markets, Nike dominates categories like running and basketball with popular shoe styles. We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges, such as uneven demand for sportswear in key markets, argues Morningstar senior analyst David Swartz. Nike’s consumer plan is led by its Triple Double strategy to double innovation, speed, and direct connections to consumers. The plan includes cutting product creation times in half, increasing membership in Nike’s mobile apps, and improving the selection of key franchises while reducing its styles by 25%. Nike stock trades at a 35% discount to our fair value estimate of $117 per share.
Polaris
- Price/fair value: 0.66
- Fair value uncertainty: Medium
- Capital Allocation Rating: Exemplary
- Industry: Recreational Vehicles
Polaris stock trades 34% 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.
Pfizer
- Price/Fair Value: 0.68
- 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 32% 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.
GSK
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
Another big name in the pharmaceutical and vaccine space, GSK rejoins our list of best stocks to buy now. 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. We expect GSK to be a major competitor in respiratory, HIV, and vaccines over the next decade. GSK stock trades 31% below our fair value estimate of $58.
British American Tobacco
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
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. However, Inton argues that the firm may have placed too many bets. Despite the challenges in its next-generation portfolio, cigarettes remain the most important driver for British American Tobacco; the company holds several brands with high market shares, particularly in the US, its largest market for cigarettes. British American Tobacco stock is trading 31% below our fair value estimate of $50 per share.
Anheuser-Busch InBev
- Price/Fair Value: 0.70
- 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 30% below our fair value estimate of $90 per share.
Ambev
- Price/Fair Value: 0.70
- Morningstar Uncertainty Rating: Medium
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Beverages—Brewers
Ambev, a subsidiary of Anheuser-Busch InBev, rounds out our list of the best companies to buy now. Ambev 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 30% below our fair value estimate of $3.23 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.
