2 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. 27, two stocks saw their Morningstar Ratings change to 4 stars, while none 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 two new 4-star stocks, ordered by market cap, are:

• Experian EXPGY
• Acuity Brands AYI

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. 27

The Morningstar US Market Index rose 0.59% over the past week, leaving the overall US stock market moderately overvalued, hovering at a 9% premium to its fair value estimate on a cap-weighted basis.

Of the 873 US-listed stocks covered by Morningstar analysts:

• 36% are undervalued, 39% are fairly valued, and 25% are overvalued.
• Two are newly undervalued.
• One is newly overvalued.
• None moved from a 4-star rating to a 5-star rating.
• None 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.
• Three 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

Experian

• Morningstar Rating: 4 stars
• One-Week Return: -1.50%

Consulting firm Experian has dropped 17.39% over the past three months and climbed 6.45% over the past year. The stock trades at a 13% discount to its fair value estimate of $50 per share, with an Uncertainty Rating of Medium. Experian is a large-growth company with a wide moat.

Acuity Brands

• Morningstar Rating: 4 stars
• One-Week Return: -1.64%

Electrical equipment and parts company Acuity has gained 10.32% over the past three months and 45.04% over the past year. The small-core stock has a narrow moat. Acuity is trading at a 13% discount to its fair value estimate of $344 per share, with an Uncertainty Rating of Medium.