With the S&P 500 having dropped 19% so far in 2022, you might see this as a buying opportunity.
But, of course, you’ll want to be a bit cautious, as raging inflation, soaring interest rates and a potential economic downturn could push stocks down further.
Still, Morningstar has generated a list of 10 stocks to consider now, using its roster of the 127 best stocks to own and filtering for the 10 most undervalued among them as of Sept. 12.
Methodology
The companies in the best stocks list “have significant competitive advantages, and we think those advantages are stable or growing,” Susan Dziubinski, director of content for Morningstar.com wrote in a commentary.
“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.”
The valuation rankings are determined by comparing the stocks’ Sept. 12 price to Morningstar analysts’ fair value estimates. Here’s the list:
1. Taiwan Semiconductor Manufacturing (TSM), a semiconductor maker. Price/Fair Value: 0.49.
2. Anheuser-Busch InBev (BUD), the beer brewer. Price/Fair Value: 0.57.
3. Yum China (YUMC), owner of fast-food restaurants in China, including KFC. Price/Fair Value: 0.58.
4. Comcast (CMCSA), the media/telecommunications company. Price/Fair Value: 0.59.
5. GSK (GSK), a U.K.-based pharmaceutical company. Price/Fair Value: 0.60.
6. Equifax (EFX), a credit-report agency. Price/Fair Value: 0.62.
7. Veeva Systems (VEEV), a cloud solutions provider. Price/Fair Value: 0.66.
8. Zimmer Biomet (ZBH), a medical device maker. Price/Fair Value: 0.68.
9. Salesforce (CRM), a business software company. Price/Fair Value: 0.69.
10. Masco (MAS), a maker a home improvement products. Price/Fair Value: 0.70.
Morningstar’s Take on Taiwan Semi
“We note two long-term growth factors for TSMC,” Morningstar analyst Phelix Lee wrote in a commentary. “First, the recent consolidation of semiconductor firms is expected to create demand for integrated systems made with the most advanced nodes.”
As an example, “major customer Nvidia (NVDA) is acquiring Arm to consolidate intellectual property and bolster high-end offerings in data centers, artificial intelligence, and the Internet of Things,” he said.
“Second, organic growth of AI, Internet of Things, and high-performance computing applications may last for decades.”
Morningstar’s take on Anheuser-Busch
“AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” Morningstar analyst Philip Gorham wrote in a commentary.
“Vast global scale, along with its monopoly-like positions in Latin America and Africa give AB InBev significant fixed cost leverage and procurement pricing power.”
As a result, the company enjoys “excess returns on invested capital and best-in-class operating and cash cycles, asset turnover ratios, and working capital management,” Gorham said.
