Stocks have soared so far this year, with the S&P 500 gaining 19%. But there still may be some buying opportunities out there.
Morningstar has a list of 130 “best companies to own.” These are companies with strong fundamentals that have significant competitive advantages, the firm says. The companies also have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions.
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Morningstar has pulled out the 10 most undervalued stocks from this list, according to the firm’s fair value estimates. It calls this group “the best stocks to buy now.” Morningstar assigns them all a wide moat, meaning they have competitive advantages that will last at least 20 years.
Consumer Products Company, Brewer
Here are the stocks, starting with the most undervalued as of July 28.
1. International Flavors & Fragrances (IFF) -), the world’s largest specialty ingredients producer
Morningstar fair value estimate: $140. Tuesday price quote: $84.50.
“IFF holds an enviable portfolio focused on value-added products used in food and beverages, fragrances, personal care, enzymes, probiotics, and pharmaceuticals,” wrote Morningstar analyst Seth Goldstein.
“Proprietary formulations are critical drivers of revenue growth. For example, rather than supplying simple flavor solutions, IFF can deliver innovative solutions that modulate the consumer experience.”
2. Anheuser-Busch InBev (BUD) -), the beer brewer
Morningstar fair value estimate: $90. Tuesday price quote: $57.
“The level of price increases implemented by BUD in the first quarter kept the gross margin stable, and the firm remains comfortably on track to meet our full-year forecasts,” wrote Morningstar analyst Philip Gorham.
“While negative publicity around Bud Light marketing is affecting sentiment in the stock, we regard this as temporary noise.”
3. GSK (GSK) -), the U.K. drug company
Morningstar fair value estimate: $54. Tuesday price quote: $35.
“The market doesn’t fully appreciate the growth potential of the firm’s key innovative products that also support GSK’s wide moat,” wrote Morningstar analyst Damien Conover.
“As one of the largest pharmaceutical and vaccine companies, GSK has used its vast resources to create the next generation of healthcare treatments.”
Drugs, Beauty and Tobaccos
4. Roche Holding (RHHBY) -), the Swiss drug company
Morningstar fair value estimate: $56. Tuesday price quote: $38.30.
5. Estee Lauder (EL) -), the beauty products company
Morningstar fair value estimate: $256. Tuesday price quote: $175.
6. Imperial Brands (IMBBY) -), the world’s fourth largest tobacco company
Morningstar fair value estimate: $34. Tuesday price quote: $24.
7. Yum China (YUMC) -), the biggest restaurant chain in China, including KFC and Pizza Hut
Morningstar fair value estimate: $84. Tuesday price quote: $57.50.
8. British American Tobacco (BTI) -)
Morningstar fair value estimate $47. Tuesday price quote: $33.30
9. Taiwan Semiconductor Manufacturing (TSM) -)
Morningstar fair value estimate: $137. Tuesday price quote: $98.65.
10. Comcast (CMCSA) -), the telecommunications/media/entertainment company
Morningstar fair value estimate: $60. Tuesday price quote: $45.40.
The author owns shares of International Flavors & Fragrances, Anheuser-Busch and Comcast.
