With the S&P 500 dropping 20% year to date, you may be looking for buying opportunities in the stock market.
Morningstar has a list of the “best companies to own.” The companies are ones to which Morningstar analysts assign a wide moat. That means the analysts think the companies have competitive advantages that will help them produce returns that outweigh their costs for the next 20 years.
The companies have predictable cash flows and make smart decisions about how they manage and invest their money, Morningstar said.
Here are the 10 companies on the list that are most undervalued, as of Oct. 31, according to Morningstar analysts’ estimates.
1. Taiwan Semiconductor Manufacturing (TSM), a Taiwan-based chip maker;
2. Yum China (YUMC), operator of Yum brands, such as KFC, in China;
3. Comcast (CMCSA);
4. Equifax (EFX), a credit-reporting agency;
5. Anheuser-Busch InBev (BUD);
6. TransUnion (TRU), another credit reporting agency;
7. Masco (MAS), a home improvement and building product maker;
8. Guidewire Software (GWRE), an insurance software company;
9. Walt Disney (DIS);
10. International Flavors & Fragrances (IFF), which makes flavors for food and fragrances for cosmetics.
Taiwan Semiconductor: Morningstar analyst Phelix Lee puts fair value for the stock at $133. It recently traded at $62.
The company is “the world’s largest dedicated contract chip manufacturer,” he wrote in a commentary.
“It makes integrated circuits for customers based on their proprietary designs. The firm has long benefited from semiconductor firms around the globe transitioning from integrated device manufacturers to fabless [no-fabrication] designers.”
The company “initially focuses on logic products, mostly used on central processing units and mobile chips, then focuses on more cost-conscious applications,” Lee said. “This strategy has been successful.”
Comcast: Morningstar analyst Michael Hodel puts fair value for the stock at $60. It recently traded at $31.
“Investors seem relieved that broadband trends didn’t worsen during the third quarter at Comcast,” he wrote in a commentary. “We also believe the expectations baked into the firm’s share price are extremely low.”
Hodel doesn’t anticipate a return to mid-single-digit growth rates of the recent past. “We think investors should focus more on cash flow and capital allocation than small changes in broadband customer metrics,” he said.
Equifax: Morningstar analyst Rajiv Bhatia puts fair value for the stock at $315. It recently traded at $164.
Equifax is one of the big three credit bureaus along with TransUnion and Experian (EXPGY) . “Given the fixed costs inherent in a data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue,” Bhatia said.
“As the U.S. credit bureau market is relatively mature, the company has been adding new capabilities and expanding its geographic footprint, both organically and through acquisitions….
Equifax’s star in recent years has been its workforce solutions segment.”
The author of this story owns shares of Comcast.
