2 Dirt Cheap Stocks to Buy If You Want to Take a Flier [Video]

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These companies lack competitive advantages and certainty around their future cash flows. But their stocks are absurdly undervalued today.

00:00 Introduction

00:41 Kohl’s KSS

01:25 Moderna MRNA

Susan Dziubinski: I’m Susan Dziubinski with Morningstar. Here at Morningstar, we think that the best long-term strategy for investing in stocks is to own companies with significant competitive advantages, or economic moats. And we think investors should only buy those companies when their stocks are trading well below what they’re worth.

But today, we’re putting all that aside. Instead, we’re focusing on the stocks of two companies that don’t have economic moats. There’s also a lot of uncertainty around the businesses and future cash flows of these companies. Yet despite that, these two companies are among Morningstar analysts’ top picks for the fourth quarter. Why? Because these stocks look absurdly undervalued to us today.

The first name on our list is Kohl’s. Kohl’s has lower sales now than it did a decade ago, even though it expanded its store base over that time. Morningstar expects online sellers as well as discount and specialty retailers to continue to chip away at sales. That being said, we think Kohl’s has some strengths, including a reputation for reasonable prices, more than 30 million loyalty members, and a large e-commerce operation that benefits from direct shipments from stores and a buy online/pick up in the stores option. Plus, its partnership with Sephora has improved its competitiveness in beauty. And most importantly, its stock looks so very cheap relative to what we think it’s worth, which is $48.

The second name on our list is Moderna. Moderna faces headwinds that are making its once-aggressive R&D strategy less feasible. Those headwinds include weak demand for covid vaccines, entrenched competition in RSV vaccines, no accelerated approval pathway for its melanoma treatment, and a shrinking pool of cash from pandemic covid vaccine profits. But Morningstar continues to believe that Moderna’s mRNA technology will allow it to establish a portfolio of vaccines as well as oncology and rare-disease treatments that are likely to provide the company with an economic moat some day—and we remain confident in the long-term sales trajectory of Moderna’s diversified pipeline. We think Moderna stock is worth $141, making it an attractive investment opportunity today.

For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar strategist Karen Andersen and senior analyst David Swartz provided the research behind this report.

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Susan Dziubinski https://www.morningstar.com/people/susan-dziubinski

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