Morningstar Identifies Deep Value in Lagging Sectors After Historic Market Rally
Chicago, Saturday, 17 January 2026.
Despite the S&P 500’s 39% surge since April 2025, Morningstar analysts pinpoint ten five-star stocks trading at steep discounts—some like Bath & Body Works at just 42% of fair value—offering a strategic hedge against overvaluation.
Identifying Value Amidst Market Euphoria
On Wednesday, January 15, 2026, Morningstar released a comprehensive report identifying 33 stocks considered significantly undervalued, ten of which are U.S.-traded companies holding the firm’s highest five-star rating [1]. This analysis arrives at a critical juncture for investors; while the S&P 500 has staged a dramatic 39% rally since April 2025, creating a generally expensive market environment, Morningstar’s data suggests distinct pockets of opportunity remain ignored by the broader capital influx [1]. The divergence is notable given that the U.S. stock market finished 2025 up by more than 17%, yet as of early 2026, the firm’s analysts noted that stocks were trading, on average, 4% below their fair value estimates [3].
Deep Discounts in Consumer and Communications Sectors
The most striking disparities between market price and intrinsic value appear in the consumer goods and retail sectors. Bath & Body Works (BBWI) is highlighted as a prime example of market pessimism, trading at a price-to-fair value ratio of just 0.42 [1]. This implies the stock is currently trading at a discount of 58 percent relative to its calculated worth. Similarly, apparel retailer Under Armour (UA) trades at a ratio of 0.40, representing a massive 60 percent discount from its fair value [1]. The report also points to major staples in the food industry, with Campbell’s (CPB) and Kraft Heinz (KHC) trading at price-to-fair value ratios of 0.44 and 0.46, respectively [1].
Methodology and Historical Performance
Understanding the criteria for these recommendations is essential for prudent asset allocation. Dziubinski explains that Morningstar defines an undervalued stock as one trading below its calculated fair value estimate, adjusted for uncertainty—a metric that encapsulates the predictability of a company’s future cash flows [1]. A five-star rating is not merely a buy signal but a statistical probability assessment; it indicates that appreciation beyond a fair risk-adjusted return is highly likely over a multiyear timeframe [1]. The firm argues that current prices for these assets reflect an “excessively pessimistic outlook,” which serves to limit downside risk while maximizing upside potential [1].