Stubbornly high inflation, rising interest rates, and talk of a possible economic recession rattled markets during 2022′s second quarter. US stocks officially entered bear-market territory and finished the quarter down nearly 17%, as measured by the Morningstar US Market Index.

Heading into the third quarter, stocks look downright cheap according to our metrics: The median stock in Morningstar’s North American coverage universe traded at a 17% discount to our fair value estimate.

“At current valuations, we think the market is overly pessimistic regarding the economic outlook,” says Morningstar chief US market strategist Dave Sekera in his latest stock market outlook.

Stocks look undervalued almost across the board viewed through several different lenses.

  • By investment style, small-value stocks are the most undervalued style, trading 40% below our fair value estimate, with large-cap core stocks only about 8% undervalued.
  • By sector, communication services and consumer cyclicals are the two most undervalued, trading 37% and 25% below our fair values. Defensive stocks in the utilities, healthcare, and consumer defensive sectors, meanwhile, are about fairly valued.
  • By Morningstar Economic Moat Rating, which is a sign of a company’s competitive advantages, wide-moat stocks are undervalued by a larger percentage (22%) than either narrow-moat or no-moat stocks.

33 undervalued stocks for 3Q 2022

Here’s the list of Morningstar’s top stock picks for the third quarter of 2022.

  • AptarGroup ATR
  • ASML Holding ASML
  • Bath & Body Works BBWI
  • Beyond Meat BYND
  • BlackRock BLK
  • Boston Beer SAM
  • Citigroup C
  • Comcast CMCSA
  • Coterra Energy CTRA
  • Dominion Energy D
  • Eastman Chemical Company EMN
  • Edison International EIX
  • Entergy ETR
  • Exxon Mobil XOM
  • FMC FMC
  • Goldman Sachs GS
  • Hain Celestial Group HAIN
  • Hanesbrands HBI
  • Illumina ILMN
  • Johnson Controls International JCI
  • Lithium Americas LAC
  • Meta Platforms META
  • Moderna Therapeutics MRNA
  • Park Hotels & Resorts PK
  • Rockwell Automation ROK
  • Salesforce CRM
  • Schlumberger SLB
  • ServiceNow NOW
  • Simon Property Group SPG
  • The RealReal REAL
  • Walt Disney DIS
  • Ventas VTR
  • XPO Logistics XPO

Here’s a brief summary of how valuations stack up across the communication services and technology sectors, along with some key Morningstar metrics about each stock pick. Data is as of July 6, 2022.

High-quality communication services stock picks

Sentiment has turned sharply negative across nearly every part of the communication services sector, observes Morningstar sector director Mike Hodel. More than 75% of the stocks in the media, interactive media, telecom, and communication services industries are undervalued. Notably, all of the analyst picks in the communication services sector have wide economic moat ratings, which means we think these companies have significant competitive advantages over the long term. Read Morningstar’s Communication Services Stocks Quarter-End Insights Report.

Comcast

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value: 0.66
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Rating: 5 Stars

Meta Platforms

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value: 0.44
  • Morningstar Uncertainty Rating: High
  • Morningstar Rating: 5 Stars

Walt Disney

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value: 0.57
  • Morningstar Uncertainty Rating: High
  • Morningstar Rating: 5 Stars

High-quality technology stock picks

Technology stocks underperformed the market during the second quarter, leaving the tech sector trading about 20% below our fair value estimate going into the third quarter—a significant reversal from just one year ago, explains Morningstar sector director Brian Colello. Software stocks, in particular, are about 20% undervalued, while semiconductor stocks are trading at a 22% discount to fair value, and hardware stocks, a 12% discount. All of our analyst picks in the sector are high-quality wide-moat stocks trading at exceptionally attractive prices. Read Morningstar’s Technology Stocks Quarter-End Insights Report.

ASML Holding

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value: 0.64
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Rating: 5 Stars

Salesforce

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value 0.59
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Rating: 5 Stars

ServiceNow

  • Morningstar Economic Moat Rating: Wide
  • Price/Fair Value: 0.71
  • Morningstar Uncertainty Rating: Medium
  • Morningstar Rating: 5 Stars