With the S&P 500 dropping 17% so far this year, many stocks have sunk to attractive valuations in some experts’ eyes.
The market now trades at about a 15% discount to fair value, as estimated by Morningstar analysts.
The firm put together a list of stocks that fell to “significantly undervalued” levels in the past month compared to Morningstar’s fair value estimates.
Then it filtered that list to include only companies that receive a moat from Morningstar analysts. That means the companies “hold a competitive advantage over their peers, through things such as high switching costs or intangible assets like patents,” Morningstar said.
Here are the eight companies on its list, in order of discounts from Morningstar’s fair value estimates. The valuation discounts are from July 19.
1. Grupo Televisa TV (TV), a Mexican mass media company. Discount from Morningstar’s fair value estimate: 43%.
2. Infineon Technologies (IFNNY) , a German semiconductor maker. Discount from fair value: 41%.
3. ING Groep (INGVF) , a Dutch bank. Discount from fair value: 39%.
4. Grifols (GRFS), a Spanish drug company. Discount from fair value: 34% .
5. Burlington Stores (BURL), a department store chain. Discount from fair value: 33%.
6. Smith & Nephew (SNNUF) , a British medical equipment maker. Discount from fair value: 30%.
7. Ingersoll Rand (IR), an industrial equipment maker. Discount from fair value: 28%.
8. Goldman Sachs (GS), a bank. Discount from fair value: 27%.
Morningstar’s Take on Grupo Televisa
“We remain bullish on Televisa's long-term prospects,” Morningstar analyst Neil Macker wrote in a commentary.
“Historically a powerhouse in Spanish-language media because of its programming prowess and ownership of the leading broadcast networks in Mexico, the firm merged its media business into Univision.”
The result: “Televisa is now focused on telecom,” Macker said. “The firm transformed itself into a leading telecom firm in Mexico through a series of acquisitions and is now one of the country’s fastest-growing broadband providers.”
Morningstar’s Take on Goldman Sachs
It has “made progress on the strategic plan that it laid out at the beginning of 2020 and set even more ambitious goals in 2022,” Morningstar analyst Michael Wong wrote in a commentary.
“The company is now targeting a medium-term return on tangible equity (ROTE) of 15% to 17%…, an expense ratio goal of about 60% and growth targets for its asset management and consumer banking businesses.”
Wong isn’t sure the company can do all of that in three years. But “we forecast the company will exceed 15% ROTE … after its consumer business has reached a more profitable scale.”
