Weekly Wrap: Stocks for Choppy Markets, Funds for the New Year, and Rebalancing

Stocks for Choppy Markets

It's been a bumpy ride in 2022 so far. This isn't entirely unexpected: After all, we rolled into a new year with stretched stock market valuations, inflation worries, and a more aggressive Fed. As Morningstar's chief markets editor Tom Lauricella noted earlier this week, "The air pocket just happened to come a lot sooner than expected." Where's a stock investor to turn? Wide-moat stocks with unassailable competitive advantages. "These stocks typically hold their value better to the downside during market corrections," explains Morningstar's chief U.S. market strategist Dave Sekera. "In addition, if inflation is persistent, these companies typically exhibit strong pricing power to quickly pass-through cost increases to maintain margins." And when you can get wide-moat stocks for less than they're worth, even better. I share the least undervalued names in the Morningstar Wide Moat Index in my Our Picks column this week. Polaris PII and Kellogg K are two of the cheapest stocks in the index today; read the article for the eight others that make the list. (Those who need a refresher on wide-moat stocks can watch our quick primer or dig deeper by reading What Makes a Moat?). On a related note, Morningstar's equity research team updated its 2022 inflation forecast; read more about it in Preston Caldwell's article.

15 Funds for 2022 and Beyond

For those readers who are looking for new ideas but prefer funds over individual stocks, fear not! Morningstar director of manager research Russ Kinnel shared his best funds for 2022 and beyond this week. What does Russ suggest for fund investors in today's choppy market? "The main things to focus on are your plan and good fundamentals," says Russ. "Those are much more important than top-down considerations." That being said, one of Russ' top ideas in the new year is Vanguard Total Bond Market Index VBTLX. "The bond index fund is nice ballast for stock market sell-offs," admits Russ--plus the fund's expenses clock in at a slim 0.05% Find 14 other worthwhile funds in Russ' article.

Do You Really Have to Rebalance?

I'm not going to lie: I've never been very good about following all of the standard financial advice I hear day in and day out at work. Sure, my portfolio's pretty diversified. I continue to stuff as much of my income as I can into my 401(k). But I've never been very disciplined when it comes to rebalancing. Given where I am in my investing journey, I should probably start paying more attention. At least that's what Morningstar portfolio strategist Amy Arnott tells me. "If you're a younger investor in your 20s or 30s and you have a couple of decades until retirement, you can afford to be a little bit more relaxed with rebalancing," Amy says. The rest of us would do well to establish and stick to a rebalancing strategy. Amy and I talked about a few different approaches in a video that aired this week.

Stock of the Week: Take-Two Interactive

Grand Theft Auto (a longtime favorite in my house of gamers) publisher Take-Two Interactive TTWO announced that it is buying mobile game publisher Zynga ZNGA for $12.7 billion. Senior analyst Neil Macker likes the move strategically. "Take-Two has needed to shift its revenue mix toward mobile, and management has made some smaller acquisitions toward this goal," he explains. "The purchase of Zynga supercharges this transformation and will make Take-Two the most leveraged toward mobile of the four traditional game publishers we cover." Morningstar assigns Take-Two a narrow Morningstar Economic Moat Rating with a stable Morningstar Moat Trend Rating and an Exemplary Morningstar Capital Allocation Rating. Based on where the stock trades today, we think shares are a steal.

The Best Companies to Own

This week, we published our inaugural list of "The Best Companies to Own." The 100-plus companies on this list share several qualities that we at Morningstar think are critical traits for long-term business success. First, these companies have built significant competitive advantages--or wide economic moats--that allow them to keep competitors at bay. They then continue maintain or strengthen these competitive advantages over time and generate predicable cash flows. Lastly, they're managed by astute capital allocators who adeptly manage their balance sheets. But as editor in chief Nic Owens points out in "What Makes a Company Great?": "Yes, these firms represent the cream of the crop of global industry--but that doesn't mean you should fire off 123 buy orders in your brokerage app." Rather, we suggest using the list as a starting point when researching high-quality, well-managed companies. As you dig deeper into the names, you may find that some fit your personal investing criteria better than others--and you'll also find that some are undervalued but many aren't. Consider our Best Companies list to be a watchlist of sorts, a place to come to when looking for new high-quality ideas.

--Susan Dziubinski

Editor's Picks

What Omicron Means for the Economy and Inflation The economic recovery shouldn't slow much, but renewed supply chain snarls could keep inflation high. Is Your Bond Fund Really a Stock Fund in Disguise? Higher-yielding bond-fund categories often come with more stock-like risk levels. 10 Wide-Moat Stocks on Sale Undervalued high-quality stocks may be just the ticket in a choppy market. Do I Really Need to Rebalance? Rebalancing is more important for some types of investors than others. Best Sustainable Companies to Own: 2022 Edition We believe these companies' strong ESG management practices give them a long-term advantage. Inflation Is Still on the Rise, for Now Five charts on key inflation trends.

Portfolio Planning and Personal Finance With Christine Benz

How Well Did the Bucket Portfolios Perform in 2021? Strong equity gains provide bucketers with an ample source of cash flow for the years ahead. 3 Things Retirees Should Watch in 2022 Keep an eye on inflation, interest rates, and expected spending in the year ahead. How Well Did the Retirement Saver Portfolios Perform in 2021? All portfolios posted strong gains in absolute terms, but the ETF portfolios crushed their mutual fund counterparts.

Mutual Funds and Exchange-Traded Funds

Value vs. Growth Funds: Value's Revival Is Uneven Value funds outperformed growth in 2021, but their advantage waned over the course of the year. The Best Companies to Own: 2022 Edition These companies stand out from the competition and can be good choices for long-term investing. BlackRock Wins One, Loses Another Morningstar issued 204 Analyst Ratings during December. What Are Fund Providers Doing to Improve Shareholders' Returns? Every little bit helps. 15 Funds for 2022 and Beyond Here are some great funds for the long haul. Target-Date Fund Flows Bounce Back in 2021 Fidelity and American Funds dominate, while Vanguard sees a seismic shift to its CITs.

Stocks

Cheap Stocks With 2021's Largest Fair Value Upgrades These undervalued stocks had the largest valuation increases by Morningstar analysts during 2021. Why Have Stocks Been So Volatile? Five charts on how the markets adjusted to a new, more aggressive Fed policy outlook. Can U.S. Banks' Momentum Continue? Here's what we're watching for during earnings season -- and our top picks in the industry today. What Take-Two's Purchase of Zynga Means The combination will supercharge mobile transformation, Morningstar's analyst says. Will Cannabis Stocks Revive in 2022? Morningstar's Kris Inton says there's plenty of opportunity for these stocks after a rough 2021. AT&T Shares Deserve a Return Call AT&T is significantly undervalued, and even after an expected dividend cut, will offer an attractive yield.

Sustainability Matters

An ESG Trailblazer Talks About Making Investing Moral, Greenwashing, and Sustainability Trends An interview with Amy Domini, founder and chair of Domini Impact Investments.

Rekenthaler Report

Grading the Academic Research on Stock Returns How accurate have been the professors' predictions? Fidelity Magellan and the Paradox of Skill How active equity management fell upon hard times.

Advisor Insights

New Year, New IRS Life Expectancy Tables These new tables come just as America experiences a downtick in life expectancies because of the coronavirus and its reverberations.

The Long View Podcast

Cullen Roche: Macro Is About Understanding the World for What It Is The popular blogger and financial advisor discusses the macro outlook, the link between portfolio construction and investor behavior, his new ETF, and more.

The Short Answer

What Is Payment for Order Flow? A closer look at how brokerages use this practice and why it's controversial.

Commentary

What Makes a Company Great? When we talk about great companies to own, here's what we mean. Protecting a Client's Portfolio From Drawdowns The road ahead could be rocky, but investors still must accept some risk in order to meet their goals. Growing a Client's Portfolio With High-Conviction Positioning Scarce opportunities require a more focused approach to portfolio construction. Here are a few ideas worth exploring in 2022. Letting Your Money Work for You Into Later Life This year is likely going to be a difficult environment for passive income generation, and it requires careful navigation. Protecting a Client's Portfolio From Inflation To achieve any meaningful progress toward financial goals, investors need to clear the inflation hurdle.

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