If you’re looking to pick up some stocks now, you might consider these three that Morningstar has begun covering.
It assigns all three a narrow moat, meaning Morningstar analysts think the companies have competitive advantages that will last at least 10 years. The analysts also view the stocks as undervalued, meaning they trade below the analysts’ fair value estimates.
1. Interactive Brokers (IBKR) -), an online securities trading platform
Morningstar fair value estimate: $112. Thursday price quote: $91.70
In addition to retail investors, Interactive caters to institutional clients like hedge and mutual funds, proprietary trading groups, introducing brokers, and financial advisers, wrote Morningstar analyst Michael Wong. The commission mix between retail and institutional clients is about 55%-45%, he said.
“Most of Interactive Brokers' clients still choose to pay commissions, when many other retail brokerages switched to a zero-commission model for U.S. stock trading,” Wong explains.
“The clients of Interactive Brokers are more sophisticated compared with the clients” of some retail brokerage firms," he said. “They trade more frequently, maintain higher cash balances to make opportunistic moves, and use leverage.”
Also, “these trading-savvy customers are attracted by Interactive Brokers’ low margin rates, comprehensive trading platform, sophisticated trading execution capabilities, and high interest paid on idle cash,” Wong said.
A Cybersecurity Player
2. Check Point Software Technologies (CHKP) -), a cybersecurity vendor
Morningstar fair value estimate: $150. Thursday price quote:$132.70
Check Point generates revenue from selling products, licenses, and subscriptions to protect networks, cloud environments, endpoints, and mobile users, wrote Morningstar analyst Rob Hales. The company is an enterprise-wide security provider
Check Point has four main products:
- Quantum network security, which is mainly hardware firewalls and associated software to secure data centers;
- CloudGuard, which provides network security for the cloud environment;
- Harmony, which provides security solutions for the end-user environment, including personal computers, mobile devices, email, and Internet browsing; and
- Horizon, which is Check Point’s new offering for security operations management.
“Compared with its competitors, Check Point is more conservative with its operating and capital investments, which leads to peer-leading operating margins and a strong balance sheet,” Hales said. “But its growth is lagging.”
A Boating Stock
3. Brunswick (BC) -), a leading manufacturer in the marine recreation industry
Morningstar fair value estimate: $118. Thursday price quote: $80.60.
Brunswick is a long-established manufacturer of pleasure boats and engines, operating under market-leading brands like Sea Ray and Mercury Marine, wrote Morningstar analyst Jaime Katz.
“We believe a portfolio of innovative products has allowed Brunswick to capture consistent pricing power, supporting its brand intangible asset,” she said. That’s what underpins her narrow moat rating.
“Bolstering Brunswick’s market leadership is an ability to meet evolving customer preferences through its autonomy, connectivity, electrification, and shared access strategies,” Katz said.
Those strategies “strive to elevate the user experience, cater to the impending migration to electric products, and facilitate higher awareness through Freedom Boat Club,” she said.
“Furthermore, Brunswick has strengthened its lineup via acquisitions, a key pillar of its long-term growth initiative.” The company also is doing well on limiting costs, Katz said.
