3 Hot Stocks to Buy That Still Look Undervalued

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Susan Dziubinski: I'm Susan Dziubinski with Morningstar.

Here at Morningstar, we talk a lot about the dangers of chasing performance, or buying a stock, ETF, or fund because it's on a hot streak. So, a video suggesting that investors consider stocks that've soared might seem out of character from us.

But just because a stock has risen significantly doesn't mean it's overvalued. Morningstar bases our fair value estimates of stocks on our expectation of future cash flows for companies. Recent stock performance plays no role in our fair value assessment. As a result, stocks that have rallied may not have reached our fair value estimates. So, today we're looking at stocks that have outperformed the market so far in 2024 but that still look undervalued to us.

1. Moderna MRNA
2. Hasbro HAS
3. ResMed RMD

The first hot stock that still looks undervalued is Moderna MRNA. Moderna's mRNA technology served a critical role in vaccinating millions during the pandemic, and the company has several potential first-in-class vaccines in testing that could serve significant and unmet needs. Moderna also has both the funding and the technological capabilities to bring these programs to market. Morningstar expects competition to increase from other mRNA vaccine market entrants, which is why we don't think Moderna has yet carved out an economic moat. We expect the company to continue burning through cash this year and in 2025, but think the firm is likely to be profitable in 2026. We think shares are worth $227.

The second hot stock that looks cheap is Hasbro HAS. Morningstar argues that the company has carved out a narrow economic moat, stemming from strong brands like Transformers, My Little Pony, and Nerf. Hasbro also has the ability to market products successfully and maintains an entrenched distribution network. While the company will need to continue to spend money on development to maintain its competitive edge, we don't expect those costs to hurt cash flow potential. Hasbro's profitability improved in the first quarter of this year; credit goes to the company's turnaround plan, which includes cutting costs and reducing inventory. We think the stock is worth $84.

And the final hot stock that we think still has gas left in the tank is ResMed RMD. ResMed is one of the largest makers of respiratory devices used to treat sleep apnea. Its devices are entrenched among patients, physicians, and payers alike; as such, we award the company a narrow economic moat rating. We think the company still has a long runway for additional growth in both developed and emerging markets. Device sales were strong in the most recent quarter, and gross margins rebounded. We think the stock is worth $264.

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Morningstar strategist Karen Andersen, senior analyst Jaime Katz, and analyst Shane Ponraj provided the research behind this segment.

Watch 3 Stocks With High Dividend Yields That Warren Buffett Likes for more from Susan Dziubinski.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.