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10 Undervalued Wide-Moat Stocks

These cheap high-quality stocks from the Morningstar Wide Moat Focus Index are attractive for long-term investors.

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The Morningstar Wide Moat Focus Index tracks companies that earn Morningstar Economic Moat Ratings of wide and whose stocks are trading at the lowest current market prices relative to our fair value estimates.

Wide-moat companies carry sound balance sheets and significant competitive advantages—two desirable qualities in the face of today’s economic uncertainty.

How has this collection of undervalued high-quality stocks performed this year? Pretty well: The Morningstar Wide Moat Focus Index beat the broad-based Morningstar US Market Index for the year to date by 3 percentage points as of Sept. 23, 2022. The undervalued wide-moat stocks included in the index beat the broader market for the trailing five- and 10-year periods, too.

With those performance numbers on the index’s side, its constituents are a fertile hunting ground for long-term investors looking for high-quality stocks trading at cheap prices.

10 Undervalued Wide-Moat Stocks to Consider

These were the 10 most undervalued wide-moat stocks in the Morningstar Wide Moat Focus Index as of Sept. 23:

  1. Meta Platforms META
  2. Teradyne TER
  3. Lam Research LRCX
  4. Comcast CMCSA
  5. Etsy ETSY
  6. Equifax EFX
  7. Boeing BA
  8. ServiceNow NOW
  9. Polaris PII
  10. MercadoLibre MELI

The most undervalued stock on the list, Meta Platforms, was trading 59% below our fair value estimate as of Sept. 23, while the last on the list, MercadoLibre stock, was trading 42% below our fair estimate. We think all 10 of these names are excellent high-quality stock ideas for long-term investors.

In an effort to keep the index focused on the least-expensive high-quality stocks, Morningstar reconstitutes the index regularly. The index consists of two subportfolios containing 40 stocks each, many of which are overlapping positions. The subportfolios are reconstituted semiannually in alternating quarters on a “staggered” schedule.

Morningstar re-evaluates the index’s holdings and adds and removes stocks based on a preset methodology. Because stocks are equally weighted within each subportfolio, the reconstitution process also involves rightsizing positions.

After the most recent reconstitution, half of the portfolio added 10 stocks and eliminated 10 stocks.

10 Wide-Moat Stocks Added to the Index

These stocks were added to the Morningstar Wide Moat Focus Index on Sept. 16:

Not surprisingly, six of the 10 stocks added to the index hail from the communications-services and technology sectors, which have been the two worst-performing sectors during 2022′s bear market.

10 Wide-Moat Stocks Removed From the Index

These stocks were removed from the Morningstar Wide Moat Focus Index on Sept. 16:

  • Blackbaud BLKB
  • Campbell Soup CPB
  • Compass Minerals CMP
  • Constellation Brands STZ
  • CoStar Group CSGP
  • Intel INTC
  • Kellogg K
  • Merck MRK
  • Philip Morris International PM
  • T. Rowe Price TROW

Two reasons for removing stocks from the index are if we downgrade their economic moats or if their price/fair value ratios rise significantly. Intel’s stock was removed from the index because we downgraded the company’s Morningstar Economic Moat Rating to narrow from wide in July. Nearly all of the other stocks removed during the latest reconstitution were pushed out by stocks that were trading at more attractive price/fair value ratios at the time of reconstitution. That being said, the stocks that were removed shouldn’t be considered stocks to sell. In fact, some of these stocks are still trading in what we’d consider a buying range. They’re just not as undervalued as the stocks added to the index at the time of the reconstitution.

What Are Wide-Moat Stocks?

Morningstar thinks that companies with wide economic moats have significant advantages that allow them to successfully fend off competitors for decades. Companies can carve out their economic moats in a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few. For a deeper dive into the concept of economic moats, read What Makes a Moat? And to learn more about (or get a refresher on) Morningstar’s approach to buying stocks, visit Morningstar’s Guide to Stock Investing.

Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.

Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.