In many stocks with strong environmental, social, and management (ESG) which also have credentials as growth equities, finding bargains in this space can be tricky.
The same goes for broad moat equities because many companies with such a dedication also have quality characteristics, and quality is rarely cheap. However, one benefit of this year’s broad market crash is the many growth stocks, including some of the ESG properties, are now for sale.
Instead of buying stock in that group, investors can turn to exchange traded funds. In this case, the “VanEck Morningstar ESG Moat ETF (MO TE) is a compelling choice. MO TE debuted in October and tracks the Morningstar® US Sustainability Moat Focus Index. Good news: That index is full of stocks for sale.
“Large share price reductions create opportunities for long-term investors to scoop up high-quality stocks at low prices. The list of undervalued names includes Comcast (CMCSA), Amazon (AMZN), Adobe (ADBE), and BlackRock (BLK), written by Morningstar analyst Lauren Solberg. “These are the companies earning the broad Morningstar Economic Moat Ratings, meaning they have a strong competitive advantage that should help them surpass their peers over the next 20-plus years. Less than a quarter of all stocks covered by Morningstar are considered moat wide. “
In order to look at MO TE roster, Comcast, BlackRock, and Adobe combined for 6.27% of the ETF roster. Amazon is not part of the ETF roster. None of its 57 holdings mandate an allocation in excess of 3.39%. Added to the lure of MO TE is that the three stocks it holds a quartet of stocks mentioned by Morningstar are not the only names in the fund trading at attractive values.
“On the bright side, companies with Morningstar Ratings of 5 stars – the stocks that trade at the steepest discount to their fair market value assessed by the analyst – that also carry broad moat ratings are on the rise, “added Solberg. “Seventeen companies on the wide-moat index are currently trading at 5-star prices: That’s 12% of the index. On average, only 1% of companies in the index have been rated as 5-star stocks in the past five years.
Others MO TE components that appear on Morningstar’s list of newly undervalued wide moat companies include ServiceNow (NOW), T. Rowe Price (NASDAQ:TROW), Veeva Systems (NASDAQ:VEEV), and Tyler Technologies (NYSE:TYL). That quartet makes up nearly 6% of the MOTE roster.
“We assign a broad moat rating to Veeva, which comes from relocation costs and to a lesser extent intangible assets,” said Morningstar analyst Dylan Finley. “The company provides mission-critical software for the life sciences industry. The high level of detail behind Veeva’s software is an asset to its clients (in improving workflow and ease of compliance with regulations) and Veeva itself (clients have their own complex workflows that embedded in its software). “
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