With many stocks with strong environmental, social, and governance (ESG) credentials that are also growth equities, finding bargains in this space can be difficult.
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 that many growth stocks, including some with ESG properties, are now being sold.
Instead of buying stock in that group, investors can turn to exchange traded funds. In this case, the VanEck Morningstar ESG Moat ETF (CBOE: MOTE) is a compelling choice. MOTE debuted in October and is tracked by 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. Comcast’s list of undervalued names includes (CMCSA)Amazon.com (AMZN)Adobe (ADBE)and BlackRock (BLK), ”Wrote 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 of appearance on the MOTE 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%. What has added to MOTE’s allure is that the three stocks it holds of the quartet of stocks mentioned by Morningstar are not the only names to trade the fund at attractive values.
“On the bright side, companies with 5 -star Morningstar Ratings — trading stocks at the greatest discount to their fair market value assessed by the analyst — that also possess broad moat ratings are on the rise,” it added. by 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.
Other parts of MOTE that appear on Morningstar’s list of newly undervalued broad 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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The opinions and predictions expressed here are those of Tom Lydon only, and may not actually happen. The information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.