In a blog post this month, Morningstar investment specialist Susan Dziubinski notes that the U.S. stock market was down by about 4% for the first quarter, according to the Morningstar US Market Index. At the start of the second quarter, stocks were trading 14% below the firm's fair value estimate.
What might that mean for the rest of the year?
"Stocks are undervalued, but for a reason," David Sekera, Morningstar's chief U.S. market strategist, wrote in his Q2 2026 stock market outlook.
The future is especially cloudy as the Iran war continues, and weakening macrodynamics are on the horizon, Sekera said.
He suggests that investors use stock market volatility to their advantage by harvesting gains in overvalued stocks and investing the proceeds in undervalued stocks.
Most Undervalued Stocks
To identify undervalued stocks, Morningstar analysts look at stock market valuations through two lenses, according to Dziubinski.
One is investment style. At present, large-growth and small-value stocks are the most undervalued stock styles, trading 25% below Morningstar's fair value estimates. Large-value, mid-core and mid-growth stocks look about fairly valued.
The other is sector. Through this lens, energy and consumer defensive stocks look the most overvalued. Heading into the second quarter, technology, communication-services, real estate and consumer cyclical stocks look most undervalued.
See the accompanying gallery for 33 undervalued stocks to buy as of March 30.
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