The S&P 500 Industrials index has posted a total return of 3.99% over the past year, compared to a negative 4.35% return for the S&P 500 as a whole. Among the undervalued stocks named by Morningstar are FedEx, Fortune Brands Innovations, and Southwest Airlines.
FedEx, the delivery giant, is the largest U.S. less-than-truckload carrier and has a durable competitive advantage and an extensive international shipping network, according to Morningstar analyst Matthew Young.
Fortune Brands Innovations, which provides home and security products, has improved its financial performance over the past decade, according to analyst Brian Bernard. Southwest Airlines is facing some operational issues, but is expected to address them and benefit from the continued growth of the industry in 2023.
Industrial stocks have outperformed the overall market in the past year, as investors are increasingly seeking value. The S&P 500 Industrials index showed a total return of 3.99% in the last year, while the S&P 500 reported a negative return of 4.35%. Despite the sector’s growth, Morningstar analysts believe that there are still some undervalued industrial stocks.
FedEx is one of the top undervalued industrial stocks. The delivery giant is the largest U.S. less-than-truckload carrier and has established relationships with retail and industrial shippers. Its extensive international shipping network is challenging to duplicate, and e-commerce spending should continue to be a growth driver. Morningstar assigns FedEx a narrow moat and has a fair value estimate of $217 for the stock, which is currently trading at $186.
Fortune Brand Innovations, which provides home and security products, is another undervalued stock according to Morningstar.
The company has improved its financial performance over the past decade through a successful operating strategy and is poised to benefit from rebounding housing demand in the future. Morningstar assigns the company a narrow moat and has a fair value estimate of $78 for the stock, which is currently trading at $62.
Southwest Airlines is another undervalued industrial stock, according to Morningstar. The company recently reported a fourth-quarter net loss and management expects another net loss in the first quarter of 2023.
US market future in the year 2023
Morningstar believes that Southwest will begin addressing operational issues in 2023 and will benefit from favorable industry-wide fundamentals. The company has maintained its capacity expansion plans and booking trends have shown improvement this month. Morningstar assigns Southwest no moat and has a fair value estimate of $55 for the stock, which is currently trading at $35.60.
Industrial stocks have been performing well in the past year, and Morningstar analysts believe there are still some undervalued stocks in the sector. FedEx, Fortune Brand Innovations, and Southwest Airlines are among the top undervalued industrial stock picks according to Morningstar.
