With stocks down 15% so far this year, now might be a good time to invest.
You might want to consider Morningstar’s list of “the 10 best companies to invest in now.” The investment research firm has a roster of the best 129 stocks to invest in generally.
These stocks have “significant competitive advantages, and we think those advantages are stable or growing,” wrote Susan Dziubinski, investment specialist at Morningstar.
“We believe the best companies have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions.”
Morningstar took the 10 most undervalued stocks, according to its fair value estimates, from the best 129. Here are the 10, in order of their undervaluation as of Nov. 30, with the most undervalued first.
- Walt Disney (DIS)
- Comcast (CMCSA)
- Taiwan Semiconductor (TSM)
- Guidewire Software (GWRE)
- Equifax (EFX)
- TransUnion (TRU)
- Anheuser-Busch InBev (BUD)
- Yum China (YUMC)
- Tyler Technologies (TYL)
- Masco (MAS)
Disney: Morningstar analyst Neil Macker assigns the company a wide moat (durable competitive advantage) and puts fair value for the stock at $170. It recently traded at $99, indicating 71% potential upside.
Commenting on the reinstallation of Bob Iger as chief executive to replace Bob Chapek, Macker said, “Even with the changes, we expect that Iger will continue to emphasize the central role of streaming at Disney.”
Further, “while Iger may not be as focused as Chapek on the parks side of the business, he has generally been highly thought of by cast members and could help lighten some of the relationship strain that arose from the pandemic,” Macker said.
“Additionally, Iger has a much longer and stronger record with investors, which will likely help Disney and him during the transition period.”
Comcast: Morningstar analyst Michael Hodel gives the company a wide moat and puts fair value for the stock at $60. It recently traded at $36, two-thirds below fair value.
“The expectations baked into the firm’s share price are extremely low,” he wrote in a commentary. “We don’t expect a return to mid-single-digit growth rates of the recent past.”
Also, “We think investors should focus more on cash flow and capital allocation than small changes in broadband customer metrics,” Hodel said.
“Comcast has generated about $3.40 per share in free cash flow over the past year, which it has returned, and then some, to shareholders through buybacks and dividends.”
Looking at potential mergers, “management indicated that at the current share price, the bar for acquisitions is high,” Hodel noted. “Given our $60 fair value estimate, we agree that buying back stock aggressively is a great way to increase shareholder value.”
Taiwan Semiconductor: Morningstar analyst Phelix Lee assigns the company a wide moat and puts fair value for the stock at $133. That's 62% above recently trades at $82.
Taiwan Semi is the world’s largest dedicated contract chip manufacturer. 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 [fabrication-less] designers,” Lee wrote in a commentary.
He sees 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,” Lee said.
“Second, organic growth of artificial intelligence, internet of things, and high-performance computing applications may last for decades.”
The author of this story owns shares of Comcast.
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