Stocks have been on a wild ride this year due to red-hot global inflation, Fed rate hikes, hawkish global central banks, Russia-Ukraine war, soaring energy prices, zero-COVID policy in China and the resulting periodic lockdown, global supply chain problems and recession risk. The S&P 500 is down 21.4% this year.
Now have to see if the worst is over. According to Fairlead Strategies founder Katie Stockton, the weakness is likely to continue in the short term, even if it is temporary, as quoted in Business Insider. The S&P 500’s rally to start October is likely a dead-cat bounce. Last month, Goldman Sachs cut its 2022 year-end target for the S&P 500 by about 16% to 3,600 points. Today, Credit Suisse and Citi also cut their 2022 year-end targets for the S&P 500.
Citi Research analysts cut their 2022 year-end target for the benchmark S&P to 4000 from 4200 and set a 2023 year-end target of 3900, as quoted in the Wall Street Journal. Credit Suisse lowered its year-end 2022 target for the benchmark index to 3850 from 4300. It also said it expects stocks to rise again next year, pointing to a climb back to 4050.
How To Navigate Through This Volatility?
Against this backdrop, investors may be looking for ways to navigate this volatility. One way to stay afloat amid market volatility is to stay invested in moat ETFs. The term “economic moat” was popularized by legendary investor Warren Buffett who said he was looking for “economic castles protected by impregnable moats.”
Simply put, a moat is a unique competitive advantage that allows a company to outperform others in the same industry over time. VanEck Morningstar Wide Moat ETF MOAT is down 16% this year (as of Oct 6, 2022), meaning the fund has outperformed the S&P 500 this year.
Broad moat companies have stronger pricing power, Morningstar’s director of equity research for index strategies recently said, meaning they are better positioned to pass rising costs directly to consumers. which is related to inflation. And both broad and narrow moat stocks have outperformed the broader equity market over the past few years, according to Morningstar. Over the past five years, MOAT has increased 55.4% compared to 47% gains in the S&P 500.
Per Morningstar, most of the largest holdings in the Morningstar Narrow Moat Index are now expensive. But index heavyweights from the wide-moat group, on the other hand, were trading at discounted prices on August 15. Wide-moat Microsoft (MSFT) is at 83% of its fair value, while another broad moat company Amazon.com (AMZN) and Alphabet (GOOGL) each hovered around 70% of their fair value.
Against this backdrop, below we highlight some broad moat stocks and ETFs that can be tapped right now. Stocks are picks from a Morningstar article published on Sep 27, 2022.
Stocks focus
Mercado Libre MELI
The company is one of the largest e-commerce platforms in Latin America. The company is a market leader in e-commerce in Brazil, Argentina, Colombia, Chile, Ecuador, Costa Rica, Peru, Mexico, and Uruguay based on unique visitors and page views.
Service Today NOW
The company provides cloud computing services that automate digital workflows to accelerate enterprise IT operations. The company’s Now Platform enables businesses to improve productivity by streamlining system processes.
Boeing B.A
The company’s leading jet aircraft along with a variety of defense products position it as one of the largest defense contractors in the United States. Its customers include domestic and foreign airlines, the US Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors, and certain government customers and US commercial communications.
Focus ETFs
VanEck Morningstar SMID Moat ETF (SMOT)
The VanEck Morningstar SMID Moat ETF seeks to track the Morningstar US Small-Mid Cap Moat Focus Index, which aims to track the overall performance of small and mid-cap companies with sustainable competitive advantages and attractive valuations according to on Morningstar’s equity research team. The 92-stock fund hit the market recently and it charges 49 bps (net).
VanEck Morningstar Wide Moat ETF MOAT
The fund tracks the overall performance of approximately 50 most attractively priced companies with sustainable competitive advantages. The fund charges 46 bps in fees.
VanEck Morningstar International Moat ETF MOTI
The 73-stock fund tracks the overall performance of 78 attractively priced companies outside the United States with sustainable competitive advantages. China (24.7%) and the United Kingdom (17.5%) hold the top two positions in the fund, by geography. The fund charges 57 bps in fees (net).
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The Boeing Company (BA) : Free Stock Analysis Report
ServiceNow, Inc. (NOW): Free Stock Analysis Report
MercadoLibre, Inc. (MELI) : Free Stock Analysis Report
VanEck Morningstar Wide Moat ETF (MOAT): ETF Research Reports
VanEck Morningstar International Moat ETF (MOTI): ETF Research Reports
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