The US stock market saw a 6% increase in the first half of 2025, with stocks trading 1% above fair value. Morningstar predicts summer volatility due to lack of safety margin. Small-value stocks are 25% undervalued, while large- and mid-cap growth stocks are overvalued. Financial services and consumer defensive sectors are overvalued.

Morningstar lists undervalued stocks for Q3 2025, including Ally Financial, Alphabet, Atlassian, and more. Basic-materials stocks are 1% overvalued, while communication-services stocks are 14% undervalued. Consumer cyclical stocks are 1% overvalued, with opportunities in apparel, autos, and travel industries. Consumer defensive stocks are 12% overvalued, with undervaluation in the alcoholic beverages industry.

Energy stocks are 10% undervalued, with oil-services subsector having the most undervalued stocks. Financial services sector is 13% overvalued, but credit services industry has undervalued companies. Healthcare stocks are 9% undervalued, with undervalued stocks in healthcare plans and biotech. Industrials stocks are 8% overvalued, with undervaluation in the farm and heavy construction machinery industry.

Real estate stocks are 10% undervalued, with most stocks in the 4-5 star range. Technology stocks are 6% overvalued, driven by cloud computing and artificial intelligence. Utilities stocks are 8% overvalued, with expectations of lower returns moving forward. Investors can find undervalued stocks by looking at metrics like price/earnings or price/cash flow. Morningstar rates 4 and 5-star stocks as undervalued.

Read more at Morningstar: 33 Undervalued US Stocks for Q3 2025