AB InBev and Equifax among Morningstar’s best and cheapest stocks
With the S&P 500 having fallen 14% this year, you might be thinking now is the time for a bargain.
If so, you might want to consider Morningstar List of the 10 most undervalued stocks on its “Best Companies to Own” list.
Companies on this “best of” list are awarded broad moats by Morningstar, meaning it believes companies will deliver returns above cost for the next 20 years or more.
The strength of companies’ competitive advantages is either stable or increasing.
The “best companies” also have predictable cash flows and strong environmental, social and governance records.
Here are the 10 most undervalued stocks on the “Best Companies” list. Undervaluation is measured against Morningstar’s fair value estimate for a stock.
The measure used is a ratio of the company’s actual stock price as of May 31 to Morningstar’s fair value estimate.
The list is in order of valuation, with the most undervalued company first.
1. Selling power (RCMP) – Get the report from Salesforce, Inc., the enterprise software giant. Valuation coefficient: 0.5. (Salesforce stock has risen sharply since May 31, putting its ratio at 0.61 as of June 3.)
3. Taiwan semiconductor (TSM) – Get the report from Taiwan Semiconductor Manufacturing Co. Ltd., the world’s largest dedicated contract chipmaker. Valuation ratio: 0.56
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4. Veeva Systems (VEEV) – Get Veeva Systems Inc Class A Report, which provides software for the life science industry. Valuation ratio: 0.62
5. Equifax (EFX) – Get the report from Equifax Inc., the credit bureau. Valuation ratio: 0.63
6. Anheuser-Busch InBev (BUD) – Get the Anheuser-Busch InBev SA/NV report, the brewer. Valuation ratio: 0.63
seven. guidewire software (GWRE) – Get the report from Guidewire Software, Inc., which provides software to insurance companies. Valuation ratio: 0.63
8. ServiceNow (NOW) – Get the report from ServiceNow, Inc., which provides information technology services. Valuation ratio: 0.67
9. Tyler Technologies (TYL) – Get the report from Tyler Technologies, Inc., which provides government software. Valuation ratio: 0.67
ten. Adobe (ADBE) – Get the report from Adobe, Inc., the content creation software company. Valuation coefficient: 0.68.
Morningstar’s take on Salesforce…
“While the enterprise cloud solutions provider will likely face revenue growth falling below 20% at some point over the next few years, we believe continued margin expansion will provide a compound earnings growth of more than 20% for much longer,” writes Morningstar.
“Salesforce has built a front-office empire it can build on for years to come.”
…and on Anheuser-Busch
“The company has a history of buying brands with promising growth platforms and then expanding distribution while ruthlessly cutting business costs, which contributes to the company’s exemplary Morningstar Capital Allocation Rating,” said Morningstar.
“AB InBev has one of the strongest cost advantages in our defensive consumer coverage and is among the most efficient operators.”
The author of this story owns shares of Salesforce and Adobe.