Analysts say you should buy these undervalued stocks while they're down.
After a big year in 2020, the S&P 500 is off to another strong start in 2021. Unfortunately, not all stocks and market sectors have navigated the precarious global economic environment effectively. Some stocks that took a big hit during the broad market sell-off in March 2020 have not recovered, many for good reason. However, a handful of the worst-performing stocks of the past year could make for excellent long-term investments. Here are nine undervalued stocks down at least 30% in the past year that investors should be buying on the dip, according to Morningstar.
Wells Fargo (ticker: WFC)
Bank stocks have rallied significantly since the November elections, but megabank Wells Fargo still has a long way to go to get back to where it was a year ago. Wells Fargo is still operating under an asset cap implemented by the Federal Reserve in 2018 as punishment for a series of scandals. However, analyst Eric Compton says Wells Fargo is still one of the leading U.S. deposit gatherers in a favorable banking environment. WFC stock is down around 27% over the past year, but Morningstar has a "buy" rating and a $45 fair value estimate.
British oil major BP is one of several beaten-down oil stocks that analysts say could make excellent long-term investments as travel and industrial oil demand recover. Analyst Allen Good says an oil market recovery is bullish in the near term, but BP is also making the most aggressive push among all oil majors to shift its long-term business away from fossil fuels and toward renewable energy. BP shares are down around 35% in the past year, but the stock still pays a 6.7% dividend. Morningstar has a "buy" rating and a $35 fair value estimate for BP stock.
Kinder Morgan (KMI)
Kinder Morgan is one of the largest U.S. midstream energy companies, specializing in natural gas transport. During its investor day event in January, Kinder Morgan maintained its 2021 guidance and highlighted its environmental, social and governance profile. Analyst Travis Miller says Kinder ranks best among 191 refinery and pipeline stocks in Morningstar's Sustainalytics ESG risk rankings. Kinder Morgan shares are down around 31% from a year ago and trade at just 16.3 times forward earnings. The stock pays a generous 6.95% dividend. Morningstar has a "buy" rating and a $21 fair value estimate for KMI stock.
Suncor Energy (SU)
Suncor Energy is a Canadian integrated oil sands exploration and production company. Analyst Joe Gemino says Suncor shares are undervalued, trading at just 16.8 times forward earnings. He says the market is too narrowly focused on the temporary disruption in demand for refined products, but Suncor's business will be back generating positive free cash flow as soon as industrial demand rebounds. Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) also owns 19.2 million shares of Suncor stock, making it a rare Buffett oil investment. Morningstar has a "buy" rating and a $24 fair value estimate for SU stock.
Telefonica is the leading telecommunications company in Spain. The stock is down almost 35% over the past year, but analyst Denise Molina says the dip is a buying opportunity. Telefonica recently announced the sale of 30,700 towers to American Tower Corp (AMT) for $9.4 billion. Molina says the sale of passive infrastructure allows Telefonica to pay down debt or invest in building and upgrading its networks. Following the sell-off, Telefonica shares trade at just 9.5 times forward earnings and pay a 9.9% dividend. Morningstar has a "buy" rating and a $10.20 fair value estimate for TEF stock.
Energy Transfer (ET)
Energy Transfer is another beaten-down midstream oil and gas infrastructure stock that focuses on liquid transport logistics. Miller says President Biden was quick to shut down construction of the controversial Keystone XL pipeline via executive order, and Energy Transfer's Dakota Access pipeline could be next on the hit list. Miller says there is around a 50% chance that the Dakota Access pipeline will be shut down. However, Miller says the stock is significantly undervalued after dropping roughly 45% in the past year, and it pays almost a 9% dividend. Morningstar has a "buy" rating and a $20 fair value estimate for ET stock.
FirstEnergy is a U.S. regional electric utility holding company that serves roughly 6 million customers. Analyst Charles Fishman says the Biden administration's green energy agenda may be a tailwind for most utilities as the need to innovate will likely spur further investment in the space. He is projecting average annual utility earnings growth of 5.5% through 2024. Much of FirstEnergy's 2020 sell-off came after the company was implicated in a bribery scandal involving Ohio House Speaker Larry Householder. However, even after discounting the negative impact of the headlines, Fishman says FirstEnergy shares have plenty of upside. Morningstar has a "buy" rating and a $43 fair value estimate for FE stock.
Undervalued stocks with bullish ratings:
-- Wells Fargo (WFC)
-- BP (BP)
-- Kinder Morgan (KMI)
-- Suncor Energy (SU)
-- Telefonica (TEF)
-- Energy Transfer (ET)
-- FirstEnergy (FE)