With the S&P 500 hitting record highs in 38 sessions this year, most recently July 16, now might be a good time for caution. You don’t want to overpay for your stocks.
If you are going to buy equities now, it always pays to find quality companies at bargain prices. Morningstar, the popular investment research firm, has put together a list of 20 stocks to help you do this.
Morningstar analysts assign all of these companies a wide-moat rating. That means the analysts see the companies with competitive advantages that will last at least 20 years.
The companies also have received “exemplary” capital allocation ratings from Morningstar analysts.
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Morningstar's value investing philosophy
“Our approach to stock investing is to buy shares of great businesses at a discount to their worth,” writes Morningstar investment specialist Susan Dziubinski.
“Great companies are those with solid competitive advantages that allow them to earn high returns on capital for years to come.”
As for determining stocks’ fair value, Morningstar values companies by estimating their underlying cash flows, she said.
“We’re looking at a company’s fundamental value and where a stock is trading relative to that value—not where the stock is trading relative to its historical price or its competition.”
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Here are five of the best-known stocks on Morningstar’s list, alphabetically.
1. Anheuser-Busch InBev (BUD) , the beer giant. Morningstar fair value estimate: $90. July 31 close: $59.50.
Despite Bud Lite's weak sales since the company’s ill-fated marketing program last year, Morningstar analyst Ioannis Pontikis remains bullish.
“Previous acquisitions have created a monster with vast global scale as well as regional density,” he wrote in a commentary.
“AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators.”
The global presence, “along with its monopoly-like positions in Latin America and Africa, give it significant cost leverage and procurement pricing power.”
Morningstar’s take on Bristol-Myers, Nike stock
2. Bristol-Myers Squibb (BMY) , the pharmaceutical stalwart. Morningstar fair value estimate: $63. July 31: $47.55.
“We believe the market is undervaluing Bristol’s new products that are showing increasing potential and should help reinforce the firm’s wide moat,” wrote Morningstar analyst Damien Conover.
“While pressure [from generic medications] are mounting against Bristol, several recently-launched drugs are showing increasing strength. That includes immunology drug Zeposia, cancer drug Breyanzi, and rare disease drug Camzyos.”
He also expects approval for Bristol’s schizophrenia drug KarXT in September.
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3. Nike (NKE) , the athletic apparel and footwear titan. Morningstar fair value estimate: $124. July 31 close: $74.85.
Nike’s stock has dropped 31% year to date amid several obstacles.
But, “We view Nike as the leader of the athletic apparel market and believe it will recover from current challenges,” wrote Morningstar analyst David Swartz. That includes “a lack of recent innovation and soft demand for sportswear in key markets.”
Nike “does face significant competition, but it has proven over a long period that it can maintain share and pricing,” he said.
Morningstar's Starbucks, Taiwan Semi stock price targets
4. Starbucks (SBUX) , the coffee shop colossus. Morningstar fair value estimate: $96. July 31 close: $77.95.
The stock has slid 18% this year amid weak sales. Morningstar analyst Sean Dunlop has a mixed outlook.
“We're encouraged by progress within the firm's loyalty program and digital business, both of which grew their share of sales during the second quarter,” he wrote in a commentary.
But, “Starbucks continues to limp through a period of weakness with its occasional customer base that we don't envision turning a corner until the second half of 2025.” At that point, Dunlop foresees a broader recovery in consumer spending.
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5. Taiwan Semiconductor Manufacturing (TSM) , the world’s largest dedicated contract chip maker. Morningstar's fair value estimate: $213. July 31 close: $165.80.
The stock has dropped 13% since July 10, as hype about artificial intelligence has eased. But the pullback represents “an entry point for investors seeking an inexpensive way to gain exposure to AI and overall semiconductor growth,” wrote Morningstar analyst Phelix Lee.
She raised her fair value estimate by 46% in June due to “higher pricing expectations, stronger AI demand, and plausible upward revision in its full-year revenue guidance.”
The author owns shares of Anheuser-Busch InBev, Nike, and Starbucks.
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