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 over 3 percentage points for the year to date.
Are growth stocks overpriced today? Demand for anything AI-related continued to push growth stocks further into overvalued territory so far this year, says Morningstar chief US market strategist Dave Sekera. Meanwhile, value stocks have lagged. “We see much better long-term investment opportunities within the value category and think investors should consider paring those growth stocks that have become overvalued and overextended,” he adds. “Now may be a good time to begin allocating to those contrarian plays that have underperformed, are unloved, and, most importantly, are undervalued.”
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 March 7, 2024, were:
- Imperial Brands IMBBY
- British American Tobacco BTI
- Pfizer PFE
- Polaris PII
- Campbell Soup CPB
- Comcast CMCSA
- Gilead Sciences GILD
- Medtronic MDT
- RTX RTX
- U.S. Bancorp USB
Here’s a little bit about each of these value stocks for the long term. Data is as of March 7, 2024.
Imperial Brands
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
Imperial Brands stock is trading 39% below our fair value estimate and tops our list of the best value stocks to buy for the long term. Morningstar director Philip Gorham refers to this Big Tobacco name 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, who 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. We think Imperial Brands stock is worth $36 per share.
British American Tobacco
- Price/Fair Value: 0.63
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Tobacco
The second Big Tobacco name on our list of the best value stocks to buy for the long term, British American Tobacco stock is trading 37% below our fair value estimate of $47 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’s Gorham.
Pfizer
- Price/Fair Value: 0.64
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
Pfizer, which is trading at a 36% 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 $42 per share.
Polaris
- Price/Fair Value: 0.64
- 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 trades 36% below our fair value estimate of $145. 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.
Campbell Soup
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Mid-Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Packaged Foods
Campbell Soup stock is trading 31% below our $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.
Comcast
- Price/Fair Value: 0.70
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Telecom Services
Comcast stock is trading 30% 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. Overall, we expect Comcast will deliver only modest growth but with strong cash flow for the foreseeable future. We assign the stock a fair value estimate of $60 per share.
Gilead Sciences
- Price/Fair Value: 0.76
- 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 is trading 24% below our $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.
Medtronic
- Price/Fair Value: 0.76
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Standard
- Industry: Medical Devices
Medtronic stock trades 24% below our $112 fair value estimate. The largest pure-play medical-device maker is a key partner for its hospital customers, thanks to its diversified product portfolio aimed at a wide range of chronic diseases, explains Morningstar senior analyst Debbie Wang. Medtronic’s plans to spin off its patient monitoring and respiratory innovations businesses will only help the company pivot more toward faster-growing markets, she adds. We have always appreciated Medtronic’s diverse portfolio, where certain waning product lines would be offset by growth in other categories.
RTX
- Price/Fair Value: 0.81
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Aerospace and Defense
RTX stock trades 19% below Morningstar’s fair value estimate. The diversified aerospace and defense company comprises three segments: Collins Aerospace, Pratt & Whitney, and Raytheon. “The combined entity unites powerhouses in the commercial aerospace and defense contracting industries and is unique in its relatively even split between commercial and defense revenue,” says Morningstar analyst Nicolas Owens. “Most other firms in the industry are heavily skewed one way or the other.” Long term, we expect RTX to benefit from secular aerospace growth and increasing defense budgets, he adds. We assign RTX stock a fair value estimate of $112 per share.
U.S. Bancorp
- Price/Fair Value: 0.83
- Morningstar Uncertainty Rating: Medium
- Morningstar Style Box: Large Value
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Banks—Regional
The final name on our list of the best value stocks to buy for the long term, U.S. Bancorp stock trades 17% below our fair value estimate of $52 per share. U.S. Bancorp is one of the most profitable regional banks we cover, says Morningstar director Eric Compton. 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. Moreover, we don’t think the bank will need to raise capital to meet any new regulatory changes, Compton adds.
What Are Value Stocks?
Simply put, value stocks are stocks that trade below what they’re worth. “Worth” is usually measured by popular valuation yardsticks, such as price/earnings or price/book ratios. Value stocks are often (but not always) found in more established industries with less robust growth prospects. Value stocks also tend to come from mature companies that pay out at least some of their earnings as dividends. In addition, companies that may have solid long-term growth prospects but whose stocks have fallen out of favor for some short-term reason (bad business news, potential regulatory risk, and so on) can become value stocks, too.
What Are the Morningstar Style Box and Fair Value Estimate?
The Morningstar Style Box is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs—including a company’s historical and long-term projected growth and its historical and forward-looking price multiples—a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalization.
The fair value estimate, meanwhile, represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.
How to Find More Cheap Value Stocks to Buy
Of course, there are many other criteria investors can use to find value stocks to buy for the long term. Here are some tools that investors can use to find more value-stock ideas to research further:
- Investors can review Morningstar’s lists of large-cap value stocks, mid-cap value stocks, and small-cap value stocks. The lists aren’t restricted by quality or valuation; rather, they’re complete lists of the value stocks in Morningstar’s database.
- Investors can use the Morningstar Investor screener to more easily compare value stocks to each other. One way would be to screen by Stock Style under the Criteria drop-down menu, choosing large value, mid-value, small value, or some combination thereof. Then once you have your results, click on Data & Columns to select Financials data points in the Stocks area. These might be valuation metrics like price/earnings ratios or profitability measures like return on assets, among others. Then click Update. Once back to the list of stocks, click on the data point that matters most to you to rank the list on that particular data point.
- Investors who’d rather invest in value stocks through a managed product like an exchange-traded fund or a mutual fund can find ideas to research further in The Best Value Funds.
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
