You’ll rarely go wrong investing with Warren Buffett.
Over the last 10 years, for example, his Berkshire Hathaway stock (BRK.B) returned 13.6% annualized, compared to 13.3% for the S&P 500.
So Morningstar put together a list of three stocks Berkshire bought in the third quarter that Morningstar analysts view as significantly undervalued.
Taiwan Semiconductor Manufacturing
(TSM)
Morningstar analyst Phelix Lee assigns the company a wide moat (competitive advantage) and puts fair value for the stock at $133. It recently traded at $82.
Taiwan Semi is the world’s largest dedicated contract chip manufacturer.
“The firm has long benefited from semiconductor firms around the globe transitioning from integrated device manufacturers to fabless [fabrication-less] designers,” Lee wrote.
To be sure, “the rise of fabless semiconductor firms has been maintaining the growth of foundries, which has in turn encouraged increased competition,” he said. “However, most of these newer competitors are confined to low-end manufacturing.”
Lee cites two long-term growth factors for TSMC. “First, the consolidation of semiconductor firms is expected to create demand for integrated systems made with the most advanced nodes,” he said.
“Second, organic growth of artificial intelligence, Internet of Things, and high-performance computing applications may last for decades.”
Paramount Global
(PARA)
Morningstar analyst Neil Macker gives the company a narrow moat and puts fair value for the stock at $45. It recently traded at $20.
“Formed via the reunion of Viacom and CBS, the rebranded Paramount derives a durable competitive advantage from the CBS broadcast network, a valuable portfolio of cable networks with worldwide carriage, production studios, and a now deeper content library,” he wrote in a commentary.
“Given our overarching premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the reunited firm.”
Meanwhile, “we think that top-line growth will be driven by streaming revenue from both Paramount+ and Pluto TV,” Macker said.
“The two services build on the firm's strong content creation abilities, deep programming library, and the secular trend toward greater streaming adoption. As a result, Paramount+ can still carve out a position in this intensely competitive market.”
RH (Restoration Hardware)
(RH)
Morningstar analyst Jaime Katz assigns the company no moat and puts fair value for the stock at $383. It recently traded at $278.
“RH has gained share in the fragmented home furnishing market in recent years, curating differentiated offerings from specialized global artisans,” she wrote in a commentary.
“The firm has broadened its brand awareness by expanding into underserved categories including modern, teen, and hospitality, where few peers have scale.” That’s helping to capture market share from boutique competitors, Katz said.
Further, “RH's e-commerce business helps enhance brand awareness, with the ability to market incremental SKUs [stock keeping units], bolstered by the World of RH platform launch,” she said.
To be sure, “RH demand remains tied to housing and equity market conditions, which have recently affected consumer willingness to spend on luxury home furnishings,” she said. That “supports our no-moat thesis.”
