3 Great Stocks to Own

Everyone defines a great company differently. Here at Morningstar, we think great companies are those that have a few traits. First, they’ve carved out significant competitive advantages that should allow them to thrive for decades to come. Next, they boast reliable cash flows. And lastly, they’re run by managers who are adept at allocating capital.

Today, we’re looking at three names that fit the bill. They may not all be undervalued today, but they’re great watchlist candidates.

The first is Clorox CLX. With a history dating back more than 100 years, Clorox now sells a variety of consumer staples products, including cleaning supplies, laundry care, trash bags, cat litter, charcoal, food dressings, water-filtration products, and natural personal-care products. Beyond its namesake brand, the firm’s portfolio includes Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Kingsford, Glad, and Hidden Valley, among others. Even though it faces competition from private-label offerings, around 80% of Clorox’s U.S. sales are from brands that are number one or two in their categories. Clorox continually looks to strengthen its brands, emphasizing innovation and marketing to differentiate its fare. We think shares are worth $171 each.

Next, Coca-Cola KO. Coca-Cola is the largest nonalcoholic beverage entity in the world, owning and marketing some of the leading carbonated beverage brands, such as Coke, Fanta, and Sprite, as well as nonsparkling brands, such as Minute Maid and Georgia Coffee. Coke’s brand resonance in the nonalcoholic beverage category has been going strong for over 130 years, and we see structural dynamics that will ensure this persists. Despite competing in a mature industry, the firm is adequately exposed, either directly or indirectly, to growth vectors such as premium water and energy drinks. Moreover, we believe Coke will be able to continue extracting incremental value growth from the carbonated soft drink market. We think shares are worth $55 apiece.

Last, there’s Colgate-Palmolive CL. Since its founding in 1806, Colgate-Palmolive has grown to become a leading global consumer product company. In addition to its namesake oral-care line, the firm manufactures shampoos, shower gels, deodorants, and home-care products that are sold in over 200 countries around the world. The firm’s focus on the oral-care category--which has been characterized by a higher degree of customer loyalty--has helped it build a sustainable advantage around the Colgate brand. In fact, the firm maintains more than nearly 40% worldwide market share in toothpaste. We think shares are worth $72 each.

Director Erin Lash and analyst Nicholas Johnson provided the research behind this segment.