![](https://www.thestreet.com/.image/c_limit%2Ccs_srgb%2Cfl_progressive%2Ch_1200%2Cq_auto:good%2Cw_1200/MTk1MTQxNzc3MDg1MTc5NjE4/amazon-lead-js-011323.jpg)
Say you’re an investor looking to increase your equity allocation but worried about the banking crisis. What might be your stock-picking strategy?
“Focus your investments on high-quality companies such as those that we [Morningstar] rate with wide or narrow moats,” senior U.S. investment strategist Dave Sekera wrote in a commentary.
“These companies typically can withstand economic stress and have long-term durable competitive advantages.” In addition, “they may benefit from competitors that can’t survive a financial crisis or economic/market dislocations,” he said.
A narrow moat means Morningstar thinks a company’s competitive advantages will last at least 10 years, and a wide moat means at least 20 years.
Here are six stocks with wide moats that are undervalued compared to Morningstar’s fair value estimates.
Alphabet (GOOGL), the Internet search giant. Morningstar fair value estimate: $154. Tuesday’s closing quote: $105.
Medtronic (MDT), the medical equipment company. Morningstar fair value estimate: $112. Tuesday’s closing quote: $81.
Amazon (AMZN), the retail/technology titan. Morningstar fair value estimate: $137. Tuesday’s closing quote: $100.60.
Salesforce (CRM), the enterprise software company. Morningstar fair value estimate: $245. Tuesday’s closing quote: $188.70.
Kellogg (K), the cereal titan. Morningstar fair value estimate: $82. Tuesday’s closing quote: $65.
Adobe (ADBE), the online creative services provider. Morningstar fair value estimate: $425. Tuesday’s closing quote: $374.
Morningstar Stock Analysis
Alphabet: “The firm’s fourth-quarter results displayed the impact of the macroeconomic environment on its ad business, which represents nearly 80% of total revenue,” wrote Morningstar analyst Ali Mogharabi.
“However, we are also pleased with continuing strong growth in the subscription and cloud businesses. With less uncertainty about the economy and an increasing focus on cost efficiency, we expect ad revenue growth to return in the second half of this year, followed by margin expansion in 2024.”
Amazon: “Amazon dominates its served markets, notably e-commerce and cloud services,” wrote Morningstar analyst Dan Romanoff. “It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader thanks to its size and scale, which yield an unmatched selection of low-priced goods for consumers.”
Also, “Prime ties Amazon’s e-commerce efforts together and provides a steady stream of high-margin recurring revenue,” he said.
“Through Amazon Web Services, Amazon is also a clear leader in public cloud services. Additionally, the firm’s advertising business is already large and continues to scale.”
Kellogg: “We view Kellogg’s fourth-quarter results as evidence of the enhancements being cultivated by its multi-year agenda to pare exposure to non-core brands and categories while investing in brands and capabilities,” wrote Morningstar analyst Erin Lash.
“Organic sales shot up an impressive 16%, buoyed by higher prices (up 15.6%) and increased volumes (0.6%). Further, Kellogg unlocked gains in adjusted gross and operating margins, which rose 120 and 40 basis points, respectively, to 31.4% and 11%.”
That progress came despite heavy cost inflation and continued prudent spending by Kellogg to support its brand mix, she said.
The author of this story owns shares of Alphabet, Medtronic, Amazon, Salesforce and Adobe.