The US stock market was down about 4% for the first quarter of 2026, according to the Morningstar US Market Index. Heading into the second quarter of 2026, stocks were trading 14% below our fair value estimate.
What might that mean for the remainder of the year?
“Stocks are undervalued, but for a reason,” writes Morningstar Chief US Market Strategist David Sekera in his Q2 2026 stock market outlook. As the war in Iran continues, the future is especially cloudy, and weakening macrodynamics are on the horizon, he adds. Sekera suggests investors use stock market volatility to their advantage by harvesting gains in overvalued stocks and investing the proceeds in undervalued stocks.
Which Stocks Are Most Undervalued?
Here’s how stock market valuations look through two different lenses:
- By investment style, large-growth and small-value stocks are the most undervalued stock styles, trading 25% below our fair value estimates. Meanwhile large-value, mid-core, and mid-growth stocks look about fairly valued.
- By sector, energy and consumer defensive stocks look the most overvalued. Technology, communication-services, real estate, and consumer cyclical stocks look most undervalued heading into the second quarter.
33 Undervalued Stocks to Buy in a Volatile Market
Here’s the new list of top stock picks from Morningstar’s analysts for the second quarter of 2026.
- Blackstone BX
- Broadcom AVGO
- CarMax KMX
- Clorox CLX
- CNH Industrial CNH
- Comcast CMCSA
- Devon Energy DVN
- Dow DOW
- Edison International EIX
- Elevance Health ELV
- Energy Transfer ET
- Flutter Entertainment FLUT
- GE HealthCare Technologies GEHC
- General Mills GIS
- Healthpeak Properties DOC
- HF Sinclair DINO
- Invitation Homes INVH
- IQVIA IQV
- Kilroy Realty KRC
- Kohl’s KSS
- LPL Financial LPLA
- MarketAxess Holdings MKTX
- Masco MAS
- Microsoft MSFT
- Mondelez International MDLZ
- Mosaic Company MOS
- NXP Semiconductor NXPI
- Portland General POR
- PVH Corp. PVH
- Omnicom Group OMC
- Qnity Electronics Q
- Walt Disney DIS
- WEC Energy Group WEC
Here are some key metrics about each undervalued stock to buy and commentary about each sector. Data for the analyst stock picks is as of March 30, 2026.
Basic materials stocks outperformed the broad market during the first quarter of 2026 by a sizable margin. Morningstar senior analyst Seth Goldstein reports less than 40% of the stocks that Morningstar covers in the sector are trading with Morningstar Ratings of 4 stars and none are trading at 5-star levels. All of the stocks in the metals and mining industry are overpriced.
The communication-services sector underperformed the broad market during the first quarter of 2026, driven largely by significant undperformance from Meta Platforms META and Alphabet GOOGL, which consume the lion’s share of the sector’s market cap, observes Morningstar sector director Michael Hodel. About 40% of the stocks we cover in the sector are trading in 4- and 5-star range.
Consumer cyclical stocks underperformed the market during the first quarter. Nearly half the stocks that we cover in the sector are trading in the 4- and 5-star range, says Morningstar sector director Erin Lash. The deepest discounts lie in the apparel and travel and leisure industries, she adds.
Consumer defensive stocks have outperformed the broad market in 2026, and 37% of the companies we cover are trading in 4- or 5-star territory, says Morningstar’s Lash. We think the alcoholic beverages and consumer packaged-goods industries are especially attractive.
Energy stocks significantly outperformed the broader market—and every other sector—during the first quarter because of the Iran war and its implications for oil prices. Morningstar director Josh Aguilar reports that there are few undervalued stocks in the sector today.
The financial-services sector has underperformed the broad market so far in 2026. Morningstar sector director Sean Dunlop says there are attractive ideas to be found in the asset management, capital markets, and credit services industry groups.
Healthcare stocks have performed on par with the broad market so far in 2026. Most of the stocks in the healthcare plans industry look undervalued, reports Morningstar director Karen Andersen. And more than half the stocks in the devices industry are undervalued, too.
Industrials stocks outperformed the broader market during the first quarter. While the sector overall looks fully valued, Morningstar director Suryansh Sharma reports that there are compelling investment opportunities in the farm, heavy construction machinery, and construction industries, in particular.
Real estate stocks are outperforming the broad market in 2026 so far. About two-thirds of the names in the sector are trading in either the 4- or 5-star range, says Morningstar senior equity analyst Kevin Brown. Interest rate movements continue to drive the performance of REITs, in particular.
Technology stocks lagged the broad market during the first quarter of 2026. We remain confident in secular tailwinds in tech, including cloud computing, artificial intelligence, and the long-term expansion of semiconductor demand, says Morningstar senior equity analyst Dan Romanoff. After months of poor performance, we see software as offering the most upside within the sector, he adds.
Utilities stocks outperformed the market during the first quarter of 2026. Morningstar senior analysts Travis Miller and Andrew Bischof think that valuations remain the biggest headwind for the sector this year: With utilities’ average dividend near historic lows and P/E multiples above long-term averages, utilities will need to deliver on earnings growth expectations.
How to Find Undervalued Stocks to Buy
Undervalued stocks are those that trade below what they’re worth. Investors can turn to several metrics to gauge a stock’s worth. Some investors use standard metrics, such as P/E or price/cash flow. Others may look at a stock’s price relative to a company’s future growth prospects or where a stock is trading relative to its 52-week high price.
At Morningstar, we define undervalued stocks as those that are trading below our calculated fair value estimate, adjusted for what we call uncertainty—both of which are wrapped into the Morningstar Rating for stocks. Stocks rated 4 and 5 stars are undervalued; those rated 3 stars are fairly valued; and those rated 1 or 2 stars are overvalued.
