The American stock market finished the first half up by nearly 6% as measured by the Morningstar US Market Index. Heading into the third quarter, stocks are trading 1% above the firm’s fair value estimate, investment specialist Susan Dziubinski reports in a new blog post.
What might that mean for the remainder of 2025?
“Looking forward, we suspect that volatility will return this summer,” Morningstar’s chief U.S. market strategist, David Sekera, writes in his third-quarter stock market outlook. “At the current premium, the market is not providing any margin of safety in order to provide a downside cushion if tariff negotiations go awry or earnings guidance for the third quarter disappoints investors.”
Dziubinski notes that by investment style, small-value stocks are the most undervalued stocks at present, trading 25% below Morningstar’s fair value estimate. Meanwhile, large- and midcap growth stocks are the most overvalued.
By sector, she says, financial services and consumer defensive stocks look the most overvalued heading into the third quarter, while communication services stocks appear to be the most undervalued.
Here’s a summary of how valuations stack up across sectors, along with some key Morningstar metrics about each undervalued stock to buy. Individual stock data is as of July 4, 2025.
See the gallery for 33 undervalued stocks across 11 sectors, as of July 4.
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