Defensive stocks, those that are resistant to economic cycles, have underperformed as the general market has jumped so far this year.
That has left some defensive stocks undervalued, Morningstar says. So you might want to have a look at the firm’s list of the five most undervalued equities from a roster of 151 top defensive stocks. Undervaluation is based on Morningstar’s fair value estimates.
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Here’s the list, starting with the most undervalued as of July 12.
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Biotech Companies on Morningstar List
Moderna, a biotechnology company: Morningstar moat (durable competitive advantage) rating for Moderna (MRNA) -): none. Morningstar fair value estimate: $266. Monday price quote: $122.50.
“We think the firm’s lead in MRNA technology and expanding evidence of efficacy across multiple therapeutic areas could support an economic moat,” wrote Morningstar analyst Karen Andersen. That depends on firm staying on track to launch several new vaccines over the next few years.”
“In the pipeline, we were encouraged by updates [in the first-quarter earnings report] from both influenza and rare disease programs,” she said.
Crispr Thereapeutics, a biotechnology company: Morningstar moat rating for Crispr (CRSP) -): none. Morningstar fair value estimate: $119. Monday price quote: $55.75.
CRISPR Therapeutics is a clinical-stage gene editing company. “Its proprietary platform specializes in Clustered Regularly Interspaced Short Palindromic Repeats, which precisely cuts DNA to disrupt, delete, correct, and insert genes to treat genetically defined diseases,” wrote Morningstar analyst Rachel Elfman.
“CRISPR’s emerging technology has led to a new class of therapies, which are well suited for targeting rare diseases or other disorders caused by genetic mutations.”
Tyson Foods, raw meat provider: Morningstar's moat rating for Tyson Foods (TSN) -): none. Morningstar fair value: $85. Monday price quote: $53.60.
“Challenges in the beef and pork segments have hurt recent results,” wrote Morningstar analyst Kristoffer Inton. “We forecast fiscal 2023 operating margins to decline dramatically amid near-term headwinds, hitting roughly 1.5% compared to more than 8% in 2022.”
But, “by 2027, we expect margin to recover to about 7.5%, mostly driven by a recovery to normal conditions in the chicken, beef, and pork markets,” he said.
CVS Has a Narrow Moat
CVS Health, a healthcare company: Morningstar's moat rating for CVS Health (CVS) -): narrow. Morningstar fair value estimate: $113. Monday price quote: $75.80.
“CVS appears uniquely positioned to improve health outcomes, and we appreciate management's focus on better leveraging its assets through digital and other means,” wrote Morningstar analyst Julie Utterback. The idea is “bring a more consumer-centric approach to healthcare, which could provide many benefits,” she said.
But, “we only incorporate high-single-digit earnings growth in our model for the long run,” Utterback said.
Kraft Heinz, a food company: Morningstar's moat rating for Kraft Heinz (KHC) -): none. Morningstar fair value estimate: $53. Monday price quote: $36.45.
“Kraft Heinz benefited from consumers’ penchant for eating at home during the pandemic, with 85% of its sales driven through the retail channel,” wrote Morningstar analyst Erin Lash.
“But we attribute recent performance to the prudence of its revamped road map (based on household penetration and repeat purchase metrics) rather than merely a byproduct of the macro environment.”
The author of this story owns shares of Kraft Heinz.
