Earnings season is in full swing, and following the early reports, there are five stocks that Morningstar chief market strategist Dave Sekera finds particularly attractive.
All five earn wide moat ratings from the research firm. A wide moat means that Morningstar sees the company with durable competitive advantages that will last at least 20 years. All five stocks also are priced well below Morningstar’s fair value estimates.
Here’s the quintet:
Alphabet
Morningstar fair value estimate of Google owner Alphabet (GOOGL) -): $161. Monday price quote: $132.
“Alphabet dominates the online search market with 90%-plus global share for Google,” wrote Morningstar analyst Ali Mogharabi.
“We expect continuing search growth. We remain confident that Google will maintain its leadership despite Microsoft moving first to include generative artificial intelligence in Bing search.”
In addition, “we foresee YouTube and cloud contributing more, … and we view investments in ‘moonshots’ as attractive, with significant uncertainty but also substantial upside.”
Biogen
Morningstar fair value estimate of biotech company Biogen (BIIB) -): $327. Monday price quote: $270.
“Biogen's specialty-market-focused drug portfolio and novel, neurology-focused pipeline create the wide moat,” says Morningstar analyst Karen Andersen.
“Biogen's strategy has its roots in the 2003 merger of Biogen (multiple sclerosis drug Avonex) and Idec (cancer drug Rituxan).”
The outcome: “while Rituxan is succumbing to biosimilar competition, Biogen is expanding its neurology portfolio beyond MS. That includes blockbuster neuromuscular disease drug Spinraza and Leqembi in Alzheimer's disease,” Andersen said.
GSK
Morningstar fair value estimate of drug company GSK (GSK) -): $54. Monday price quote: $35.60.
“GSK reported better-than-expected second-quarter results and slightly raised 2023 guidance, but we don’t expect any major changes to our fair value estimate based on the minor outperformance,” Wrote Morningstar analyst Damien Conover.
Still, “the market doesn’t fully appreciate the growth potential of the firm’s key innovative products that also support GSK’s wide moat,” he said.
Indeed, “the magnitude of GSK's reach is evidenced by a product portfolio that spans several therapeutic classes.”
RTX
Morningstar fair value estimate of aerospace company RTX (RTX) -): $112. Monday price quote: $87.40.
RTX (formerly known as Raytheon) includes Rockwell Collins' aerospace componentry, Pratt & Whitney's engines, and Raytheon's missiles, sensors, and communications offerings.
“The combined entity unites powerhouses in the commercial aerospace and defense contracting industries,” wrote Morningstar analyst Nicolas Owens. “It is unique in its relatively even split between commercial and defense revenue. Most other firms in the industry are heavily skewed one way or the other.”
Taiwan Semiconductor Manufacturing
Morningstar fair value estimate of chip maker Taiwan Semiconductor Manufacturing (TSM) -): $137. Monday price quote: $99.
Taiwan Semi is the world’s largest dedicated contract chip manufacturer, or foundry. 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,” wrote Morningstar analyst Phelix Lee.
“It’s a significant beneficiary in high performance computing, which includes generative artificial intelligence.”
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