When you’re looking to buy stocks, ones that have strong earnings and low valuations are generally attractive.
With that in mind, you’ll want to have a look at a stock list from Morningstar.
The research firm started with the 843 U.S.-listed stocks that it covers. Next, it screened for companies that beat revenue expectations in the fourth quarter by at least 5%. Then it filtered for stocks that are substantially undervalued compared to its analysts’ fair value estimates.
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And finally, the firm selected only companies assigned a moat by its analysts. A narrow moat means the company is expected to maintain a competitive advantage over its peers for at least 10 years. And a wide moat points to a competitive advantage for at least 20 years.
Of the companies covered by Morningstar, only 11 stocks made the cut. And Morningstar erased two of them from the roster, because their earnings strength stemmed from “idiosyncratic events.” That was Koninklijke Philips (PHG) and Evergy (EVRG).
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Top Undervalued Stocks
The nine winners, starting with the most undervalued as of March 1, are:
Malibu Boats (MBUU), a power boat maker. Morningstar moat: narrow. Morningstar fair value estimate: $96. Recent (March 6) quote: $59.80.
BorgWarner (BWA), an auto parts supplier. Morningstar moat: narrow. Morningstar fair value estimate: $79. Recent (March 6) quote: $50.25.
Winnebago Industries (WGO), a motor home maker. Morningstar moat: narrow. Morningstar fair value estimate: $86. Recent (March 6) quote: $63.65.
HSBC (HSBC), the U.K.-based bank. Morningstar moat: narrow. Morningstar fair value estimate: $49. Recent (March 6) quote: $37.20.
Fanuc (FANUY) , a Japanese industrial machinery provider. Morningstar moat: wide. Morningstar fair value estimate: $21.54. Recent (March6) quote: $17.85.
Activision Blizzard (ATVI), the video game publisher. Morningstar moat: narrow. Morningstar fair value: $92. Recent (March 6) quote: $79.70.
Gilead Sciences (GILD), the biotechnology company. Morningstar moat: wide. Morningstar fair value: $97. Recent (March 6) quote: $80.90.
Evercore (EVR), an investment bank. Morningstar moat: narrow. Morningstar fair value: $158. Recent (March 6) quote: $130.
Ingersoll Rand (IR), an industrial technology company. Morningstar moat: narrow. Morningstar fair value: $63. Recent (March 6) quote: $60.05.
Boats and Auto Parts Highlighted
Malibu Boats: “The firm should be able to grow sales at an average of 8% over the next decade, outpacing the industry, given its exposure to ‘growthy’ segments of the boating market and its penchant for acquisitions,” Morningstar analyst Jaime Katz wrote in a commentary.
“Furthermore, as inflationary pressures normalize, we believe the gross margin should trend upward, bolstered by innovation across products and features.”
BorgWarner: BorgWarner reported fourth-quarter earnings per share before special items of $1.26, up 20 cents from a year ago, beating estimates, notes Morningstar analyst Richard Hilgert.
Revenue rose 12% to $4.1 billion, also beating estimates, from $3.7 billion a year earlier, when the chip shortage was still raging.
“We maintain our thesis that BorgWarner will increase revenue at above-market rates as its products reduce emissions and support vehicle electrification,” Hilgert said.
