10 of Morningstar's favorite undervalued stocks

This one may surprise you.

While the Morningstar US stock Market Index climbed 13% through the first nine months of the year (compared with the S&P 500's 7%), the stocks it covers traded at an 8% discount to its fair value estimates as of Sept. 29.

Related: Utility stocks are on sale; here are Morningstar's top 3 picks

“Between the market pullback and raising our fair value estimates on a handful of stocks, the market is now back to trading at an attractive discount,” wrote Morningstar chief U.S. market strategist David Sekera.

With that in mind, Morningstar put together a list of its 33 top underpriced stock picks for the fourth quarter. Here are 10 of them, listed alphabetically.

Electric vehicles, beer, and securities

1. Albemarle  (ALB) - Get Free Report, the world’s largest lithium producer

Morningstar moat (durable competitive advantage): narrow. Morningstar fair value estimate: $350. Friday’s closing price: $159.84.

“In 2022, battery electric vehicles represented nearly 10% of global auto sales, up from a little less than 6% in 2021,” wrote Morningstar analyst Seth Goldstein. Lithium is a central element in EV batteries. “The growth can and will continue…. [And] lithium is our preferred resource” stock pick for EV batteries.

2. Anheuser-Busch InBev  (BUD) - Get Free Report, the beer brewer

Morningstar moat: wide. Morningstar fair value estimate: $90. Friday’s closing price: $52.80.

3. Charles Schwab  (SCHW) - Get Free Report, the securities brokerage

Morningstar moat: wide. Morningstar fair value estimate: $80. Friday’s closing price: $51.52

4. Federal Realty Investment Trust  (FRT) - Get Free Report, a shopping-center real estate investment trust (REIT)

Morningstar moat: none. Morningstar fair value estimate: $142. Friday’s closing price: $86.92.

5. Illumina  (ILMN) - Get Free Report, a provider of tools and services to analyze genetic material

Morningstar moat: narrow. Morningstar fair value estimate: $269. Friday’s closing price: $140.02.

Staffing, railroad, and Mickey Mouse

6. ManpowerGroup  (MAN) - Get Free Report, a staffing agency

Morningstar moat: none. Morningstar fair value estimate: $109. Friday’s closing price: $73.07.

7. Nordstrom  (JWN) - Get Free Report, the department store chain

Morningstar moat: narrow. Morningstar fair value estimate: $40. Friday’s closing price: $14.20.

8. Norfolk Southern  (NSC) - Get Free Report, the railroad

Morningstar moat: wide. Morningstar fair value estimate: $229. Friday’s closing price: $191.51.

“Norfolk Southern is a well-managed enterprise,” wrote Morningstar analyst Matthew Young. “Despite setbacks in 2022 linked to labor constraints and service issues, its precision scheduled railroading principles have yielded more efficient use of locomotive assets and labor.”

He expects operating ratio (expenses/revenue) gains to resume longer term, as the firm optimizes network service.

9. Pinterest  (PINS) - Get Free Report, the social media company

Morningstar moat: narrow. Morningstar fair value estimate: $36. Friday’s closing price: $28.08.

10. Walt Disney  (DIS) - Get Free Report, the media/entertainment company

Morningstar moat: wide. Morningstar fair value estimate: $145. Friday’s closing price: $82.94.

“Disney is successfully transforming its business to deal with the ongoing evolution of the media industry,” wrote Morningstar analyst Matthew Dolgin.

“The firm’s direct-to-consumer efforts, such as Disney+ …, are taking over as the drivers of long-term growth as the firm transitions to a streaming future…. And ESPN remains the dominant domestic sports television network.”

The author of this story owns shares of Anheuser-Busch InBev and Walt Disney.