It never hurts to buy the stocks of undervalued companies with strong fundamentals.
So you may want to have a look at the 10 most undervalued stocks on Morningstar’s list of the 117 best stocks to own. The firm measures valuation based on its fair value estimates.
The best stocks to own have Morningstar’s wide moat designation. That means it expects the companies will sustain competitive advantages for at least 20 years.
The research firm also takes environmental, social and governance (ESG) factors into account. “The best companies have business models that allow them to effectively navigate evolving ESG issues that could materially impact their business,” Morningstar says.
Companies on the best-to-own list also have predictable cash flows, so Morningstar analysts can more accurately estimate valuations. And, of course, the companies make smart decisions about how they manage and invest their money.
Here are the 10 most undervalued stocks of the best-to-own list as of June 28, starting with the most undervalued:
1. International Flavors & Fragrances (IFF), the world’s largest specialty ingredients producer. Morningstar fair value estimate: $140. July 3 price quote: $80.35.
“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. Rather than supplying simple flavor solutions, IFF can deliver innovative solutions that modulate the consumer experience.”
2. U.S. Bancorp (USB), the biggest U.S. regional bank. Morningstar fair value estimate: $53. July 3 quote: $33.70.
The bank has been “one of the most profitable regional banks we cover,” wrote Morningstar analyst Eric Compton. “Few domestic competitors can match its operating efficiency and returns on equity over the past 15 years.”
As for the banking industry’s recent turmoil, “the largest banks will not face dramatic disruption to their deposit bases,” he said.
3. Anheuser-Busch InBev (BUD), the beer-brewing giant. Morningstar fair value estimate: $90. July 3 quote: $57.35.
The negative publicity around Bud Light’s marketing that pushed the stock down will prove to be “temporary noise,” wrote Morningstar analyst Philip Gorham. The company had a “solid performance” in the first quarter, he said.
And its current price increases will give ABI “pricing flexibility to stimulate demand in the event of a material downturn in consumer confidence.”
4. GSK (GSK), the U.K. drug stalwart. Morningstar fair value: $54. July 3 quote: $35.35.
5. Wells Fargo (WFC), the money-center bank. Morningstar fair value: $61. July 3 quote: $43.55
6. Yum China (YUMC), the Chinese franchiser of KFC and Pizza Hut. Morningstar fair value: $84. July 3 quote: $57.40.
7. Roche Holding (RHHBY) , the Swiss drug heavyweight. Morningstar fair value: $57. July 3 price quote: $38.15.
8. Comcast (CMCSA), the media/entertainment/telecommunications titan. Morningstar fair value: $60. July 3 price quote: $41.75.
9. Taiwan Semiconductor Manufacturing (TSM), the stellar chip maker. Morningstar fair value: $139. July 4 price quote: $102.65.
10. Pfizer (PFE), the big pharmaceutical company. Morningstar fair value: $48. Recent quote: $36.65.
The author of this story owns shares of International Flavors & Fragrances, U.S. Bancorp, Anheuser-Busch, Comcast and Pfizer.
