8 New 4-Star Stocks

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Each week, we screen the US-listed stocks under Morningstar’s coverage for newly undervalued names.

For the week ended Dec. 6, eight stocks saw their Morningstar Ratings change to 4 stars, while another three dropped into 5-star territory. Stocks rated 3 stars are fairly valued according to Morningstar analysts, while those rated 1 or 2 stars are considered overvalued.

The five new 4-star stocks with the largest market capitalization are:

• Johnson & Johnson JNJ
• General Dynamics GD
• Occidental Petroleum OXY
• Carnival CCL
• MarketAxess Holdings MKTX

The three new 5-star stocks, ordered by market cap, are:

• Heineken HEINY
• Orange ORANY
• LyondellBasell LYB

The full list of new 4-star stocks can be found at the bottom of this story. All returns in this article are reported in the stock’s base currency and all data is sourced from Morningstar Direct.

Newly Undervalued Stocks for the Week Ended Dec. 6

The Morningstar US Market Index rose 0.97% over the past week, leaving the overall US stock market moderately overvalued, hovering at a 6.9% premium to its fair value estimate on a cap-weighted basis.

Of the 878 US-listed stocks covered by Morningstar analysts:

• 31% are undervalued, 38% are fairly valued, and 31% are overvalued.
• Eight are newly undervalued.
• 13 are newly overvalued.
• Three moved from a 4-star rating to a 5-star rating.
• Zero moved from a 5-star rating to a 4-star rating.
• Among the newly undervalued stocks, none jumped from a 3-star rating to a 5-star rating.
• 10 are no longer undervalued.

Morningstar analysts assign every stock under their coverage a fair value estimate, which is an intrinsic measure of the stock’s worth, and an Uncertainty Rating, which captures the range of potential outcomes for that estimate. A higher Uncertainty Rating equates to a larger range of prices considered fairly valued. These two metrics and the stock’s current price determine its Morningstar Rating.

Metrics for this Week’s New 4-Star Stocks

Johnson & Johnson

• Morningstar Rating: 4 stars
• One-Week Return: -3.68%

Drug manufacturer Johnson & Johnson has lost 8.44% over the past three months and 1.64% over the past year. The large-value stock has a wide moat. Johnson & Johnson is trading at a 9% discount to its fair value estimate of $164 per share, with an Uncertainty Rating of Low.

General Dynamics

• Morningstar Rating: 4 stars
• One-Week Return: -4.30%

Aerospace and defense company General Dynamics is down 6.73% over the past three months and up 10.05% over the past year. The stock’s price is 10% below its fair value estimate of $302 per share, with an Uncertainty Rating of Low. The large-value stock has a wide moat.

Occidental Petroleum

• Morningstar Rating: 4 stars
• One-Week Return: -6.01%

Oil and gas exploration and production company Occidental has lost 8.24% over the past three months and 14.58% over the past year. The mid-value stock has no moat. Occidental is trading at a 23% discount to its fair value estimate of $62 per share, with an Uncertainty Rating of Very High.

Carnival

• Morningstar Rating: 4 stars
• One-Week Return: 4.64%

Travel services company Carnival has climbed 69.81% over the past three months and 52.23% over the past year. The fair value estimate for Carnival rose to $31 per share from $28 during the week. It ended the week trading at a 14% discount to its new fair value estimate, with an Uncertainty Rating of High. Carnival is a mid-core company with a narrow moat.

MarketAxess Holdings

• Morningstar Rating: 4 stars
• One-Week Return: -7.25%

Capital markets company MarketAxess has lost 6.33% over the past three months and 7.27% over the past year. The small-core stock has a wide economic moat. MarketAxess is trading at a 21% discount to its fair value estimate of $305 per share, with an Uncertainty Rating of High.

Metrics for this Week’s New 5-Star Stocks

Heineken

• Morningstar Rating: 5 stars
• One-Week Return: -1.45%

Alcoholic beverages company Heineken is down 18.54% over the past three months and 18.80% over the past year. The stock’s price is 32% below its fair value estimate of $54 per share, with an Uncertainty Rating of Medium. The large-core stock has a narrow moat.

Orange

• Morningstar Rating: 5 stars
• One-Week Return: -0.74%

Telecom services firm Orange has lost 11.38% over the past three months and 8.31% over the past year. The large-value stock has no moat. Orange is trading at a 32% discount to its fair value estimate of $15 per share, with an Uncertainty Rating of Medium.

LyondellBasell

• Morningstar Rating: 5 stars
• One-Week Return: -6.84%

Specialty chemicals company LyondellBasell is down 16.96% over the past three months and 12.57% over the past year. The stock’s price is 34% below its fair value estimate of $115 per share, with an Uncertainty Rating of Medium. The mid-value stock has a narrow moat.