With the S&P 500 down 14% this year, you may be thinking now is the time to bargain.
If so, you may want to consider Morningstar’s roster of the 10 most undervalued stocks on its “Best Owned Companies” list.
The companies on that “Best” list are designated by Morningstar by broad moats, which means it thinks the companies will yield revenues that exceed their costs over the next 20 years or so.
The strength of companies ’competitive advantages can be stable or rising.
“Best Companies” also has predictable cash flows and strong notes on environmental, social and governance issues.
Here are the 10 most undervalued stocks on the “Best Companies” list. Undervaluation is measured versus Morningstar’s estimate of fair value for a stock.
The metric used was a ratio of the company’s actual share price as of May 31 to Morningstar’s fair value estimate.
The list is in order of valuation, with first the company with the lowest value.
1. Salesforce (CRM) – Get a Report on Salesforce, Inc., the business software giant. Appreciation ratio: 0.5. (Salesforce stock has risen sharply since May 31, putting its ratio at 0.61 on June 3.)
2. Yum China (YUMC) – Get Report of Yum China Holdings, Inc., which includes KFC and Pizza Hut in China. Appreciation ratio: 0.53
3. Taiwan Semiconductor (TSM) – Get a Report of Taiwan Semiconductor Manufacturing Co. Ltd, the largest dedicated contract chipmaker in the world. Appreciation ratio: 0.56
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4. Veeva Systems (VEEV) – Get the Veeva Systems Inc Class A Report, which provides software for the life sciences industry. Appreciation ratio: 0.62
5. Equifax (EFX) – Get Equifax Inc, the credit bureau. Appreciation ratio: 0.63
6. Anheuser-Busch InBev (BUD) – Get Anheuser -Busch InBev SA/NV Report, the brewer. Appreciation ratio: 0.63
7. Guidewire Software (GWRE) – Get a Report by Guidewire Software, Inc., which provides software for insurance companies. Appreciation ratio: 0.63
8. Service Today (NOW) – Get a ServiceNow, Inc. Report, which provides information technology services. Appreciation ratio: 0.67
9. Tyler Technologies (TYL) – Get a Report from Tyler Technologies, Inc., which provides government software. Appreciation ratio: 0.67
10. Adobe (ADBE) – Get Adobe, Inc. Report, the content creation software company. Appreciation ratio: 0.68.
Morningstar’s Perspective on Salesforce …
“While the enterprise cloud computing solution provider is likely to face a decline in revenue growth below 20% at some point in the next few years, we think continued margin expansion will provide compound growth. of revenue more than 20% longer, ”Morningstar wrote.
“Salesforce has built a front-office empire that it can build in the coming years.”
… and at Anheuser-Busch
“The company has a history of buying brands with promising growth platforms and then expanding distribution while relentlessly squeezing costs out of businesses, contributing to the company’s exemplary Morningstar Capital Allocation Rating , ”Morningstar said.
“AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the best operators.”
The author of this story owns parts of Salesforce and Adobe.