Morningstar names 5 undervalued company stocks that beat Wall Street's expectations

Analysts at investment rating agency Morningstar have identified five companies whose shares remain undervalued, despite the fact that their financial results for the third quarter significantly exceeded Wall Street forecasts. The sample included stocks whose issuers exceeded earnings forecasts by at least 15% and whose revenues were better than expected by 5% or more.

Common features of Morningstar's top five favorites are strong quarterly results, sustainable competitive advantages ("economic moat"), and a high investment attractiveness rating (4 or 5 stars) with significant upside potential to fair value.

Who made the list?

Nike, the world's largest maker of athletic apparel and footwear, looks the most undervalued on Morningstar's list, at a 40% discount to its fair price ($104 per share), according to the agency. The company is overcoming a sales slump in China and implementing CEO Elliott Hill's "Win Now" plan, focusing on innovation, rebuilding relationships with wholesale partners and reducing inventory levels. "We believe investors are overlooking the potential for operating margins to grow to mid-twenty (midteen, 14-16%) levels through new product launches, marketing and price increases," said David Schwartz, Morningstar's senior analyst for the consumer staples sector.

Neurological disease drug developer Biogen is trading at a 25% discount to fair value despite an 18% rise in earnings per share and increased U.S. sales of its key Alzheimer's disease drug Leqembi, Morningstar said. Although Biogen "nominally lowered" its full-year earnings guidance, it actually improved by 1.5% if one-time R&D expenses are excluded, the agency noted. Biogen's current market valuation is "severely undervalued," even though there is a high level of uncertainty due to the wide fork in Leqembi's possible peak sales, Morningstar senior healthcare sector analyst Jay Lee argued.

Blackstone, the world's largest alternative asset manager, is valued by the market at 21% below its fair value of $220 per share, Morningstar writes. The company is recording inflows of funds in the real estate, credit and insurance sectors, confirming strong demand for alternative investment products. "Efficient fundraising, fund placement and asset sales have allowed the firm to continue to grow organically despite a more volatile market environment of late," writes Morningstar's senior analyst for the financial services sector, Greggory Warren.

Corteva, one of the leaders in the agrochemical industry, whose shares Morningstar considers undervalued by 18% at a fair value of $80, unexpectedly posted a profit in its traditionally unprofitable third quarter thanks to higher sales and lower costs. On the back of the strong results, the company's management raised its outlook for 2025 and 2026. "The increase in our valuation is driven by an improved near-term outlook in both the seed and crop protection products businesses, as well as improved margins in the seed business over the longer term," Morningstar senior analyst for the basic materials sector Seth Goldstein said.

Royalty Pharma, the largest buyer of royalties (license fees) on future sales of biopharmaceuticals, trades at a 24% discount on the back of 11% growth in portfolio revenue and higher forecasts for 2025. Stable cash flow allows the company to aggressively invest in new deals ($1 billion for the quarter) and buy back its own shares. "We raise our fair value estimate to $51 per share given the time value of money, improved near-term outlook and the firm's ability to offset losses from patent expirations," summarizes Morningstar healthcare sector analyst Rachel Elfman.

This article was AI-translated and verified by a human editor