With the S&P 500 having finished one of the worst first halves of the year since 1970, investors are given an opportunity to find some compelling buying opportunities in the broader markets.
Concerns about a recession and rising inflation have led most ‘higher-risk’ stocks to trade much lower compared to 2021, but some value stocks also dropped in value offering possible buying opportunities.
Thus, Finbold has analyzed three undervalued stocks that top fund managers value, that have been highlighted by Morningstar.
Concentrated fund managers invest in a universe of 20-50 stocks, being choosy what they buy, but a common thread spans across their highest conviction plays, with the following three Alphabet (NASDAQ: GOOGL), Booking Holdings (NASDAQ: BKNG), and Microsoft (NASDAQ: MSFT) seen in most of their portfolios.
Alphabet chart and analysis
Every fund on the Morningstar list features the stock of this company, which dominates 80% of the global search market, with strong revenue and cash flow growth. Morningstar analysts believe that the firm will continue growing and performing well.
“Alphabet also owns YouTube, which we think will begin to contribute more to the company’s top and bottom lines. We think Alphabet has significant competitive advantages and is run by a strong management team. Shares look undervalued to us today.”
The short-term trend is positive, while the long-term trend is neutral, with GOOGL stock trading between $104.07 and $122.43, over the past month. Furthermore, technical analysis shows a support line at $109.55 and a resistance zone from $121.68 to $122.26.
TipRanks analysts have a ‘strong buy’ rating consensus, seeing the average price in the next 12 months reaching $142.63, 19.31% higher than the current trading price of $119.55; notably, only two analysts have a hold position.
Booking Holdings chart and analysis
The world’s largest travel agency by revenue is also a frequent addition to concentrated fund’s stock lists, with short-term headwinds recognized by Morningstar in the form of Covid and rising inflation. However, they also see Booking holding onto its leadership position and expanding its business into booking experiences, and restaurants, among other things.
“And although big names like Amazon and Google might become competitors to some of Booking’s business, we think they’re unlikely to replicate Booking’s network and model. Shares look undervalued according to our metrics.”
In the last month, BKNG has been trading in the $1,785.90 to $2,161.05 range, staying in the middle of its 52-week range. Meanwhile, the support zone is located from $1,913.47 to $1,924.97, while the resistance zone is from $2,129.66 to $2,151.34.
Analysts on Wall Street rate the shares a ‘moderate buy,’ seeing the average 12-month price reaching $2,415.95, 13.44% higher than the current trading price of $2,129.65.49, with no sell ratings.
Microsoft chart and analysis
The analysts conclude that Microsoft has morphed itself into a cloud business leader, shifting from a license model to a subscription model, with strong cash flow generation and growth, the analysts conclude.
“As a result, Microsoft today is a focused company with impressive revenue growth and high and expanding margins. Here, too, shares are undervalued.”
MSFT is part of the Software industry with another 367 stocks in this industry, where they outperform 85% of them. In the last month, MSFT has traded from $249.57 to $294.18. Further, the stock’s support line is at $257.22, while the resistance line is at $291.92.
TipRanks analysts have a strong buy’ rating consensus, seeing the average price in the next 12 months reaching $325.77, 11.83% higher than the current trading price of $291.32.
In the end, if the Federal Reserve (Fed) can push down inflation while avoiding a recession, these value opportunities won’t last long.
There is no better place for investors seeking some reliable value plays to look than at high-quality firms that generate a lot of robust cash flow, and the three companies mentioned above all have that attribute.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.