With the S&P 500 dropping 25% year to date, you may be looking for buying opportunities in the stock market.
Morningstar came up with a list of the “best companies to own.” The companies are ones to which Morningstar analysts assign a wide moat. That means the analysts think they have competitive advantages that will help them produce returns that outweigh their costs for the next 20 years.
The companies have predictable cash flows and make smart decisions about how they manage and invest their money, Morningstar said.
Here are some stocks that appear on the list, and all of them are undervalued, according to Morningstar analysts.
- Anheuser-Busch InBev (BUD)
- Berkshire Hathaway (BRK.B)
- GSK (GSK), a U.K. drug company
- Emerson Electric (EMR), an engineering company
- Microsoft (MSFT)
- Walt Disney (DIS)
- Nike (NKE)
- Comcast (CMCSA)
- Domino’s Pizza (DPZ)
- Starbucks (SBUX)
Morningstar’s Take on Berkshire Hathaway
Morningstar analyst Greggory Warren puts fair value for the stock at $357. It recently traded at $273.
“We continue to believe that [Warren Buffett-led] Berkshire, owing to its diversification and its lower overall risk profile, offers one of the better risk-adjusted return profiles in the financial-services sector,” Warren wrote in a commentary.
The company “remains a generally solid candidate for downside protection during market selloffs,” he said.
“We continue to be impressed by Berkshire's ability in most years to generate high-single- to double-digit growth in book value per share, comfortably above our estimate of its cost of capital.”
Morningstar’s Take on Emerson Electric
Morningstar analyst Joshua Aguilar puts fair value for the stock at $113. It recently traded at $78.
“Emerson Electric is the undisputed powerhouse in process manufacturing on the west side of the Atlantic,” he wrote in a commentary. “Emerson is poised for several years of positive organic growth.”
The company’s “total addressable automation market, both served and unserved, totals over $200 billion,” Aguilar said.
“Emerson holds either first or second share in a variety of product categories. Depending on the category, Emerson holds roughly mid-teens market share.”
Meanwhile, “share from established firms remains somewhat fragmented, suggesting a large runway for [Emerson’s] growth,” Aguilar said.
Morningstar’s Take on Nike
Morningstar analyst David Swartz puts fair value for the stock at $129. It recently traded at $88.
“We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges, despite near-term inventory and economic issues,” he wrote in a commentary.
“Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles.”
The company “does face significant competition, [but] we believe it has proven over a long period that it can maintain share and pricing,” Swartz said.
One smart strategy: “Nike has invested in its direct-to-consumer network while cutting wholesale accounts,” he said.
