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Stock Strategist

This Quarter's Hottest Stocks

The health-care sector dominates our current list of hottest stocks.

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This quarter, we've focused on wide-moat stocks again for our hot stocks article. At Morningstar, we assign moat ratings to stocks to reflect our opinion of the competitive advantages of their underlying businesses. A wide-moat designation is the best a stock can get, and it means that Morningstar analysts think the underlying business can achieve returns on capital that outstrip its cost of capital for the foreseeable future. Currently, 186 stocks in our 2,000-stock universe (less than 10%) garner this coveted rating.

While our screen produced some financials and retailers last quarter, the bump that stalwarts such as  American Express (AXP) and  Home Depot (HD) received proved short-lived, as those stocks pulled back again (though we think that's only made them more compelling long-term buys). We ran our wide-moat screen searching for stocks that rose 5% for the three trailing months through July 18 but still trade in 5-star territory. (To run the most up-to-date version of this screen yourself,  click here.) This quarter, health-care names had a strong showing. In fact, when we relaxed the search criteria and allowed for stocks that had moved into 4- and 3-star territory because of their strong runs, we saw health-care dominance from firms such as  Amgen (AMGN),  GlaxoSmithKline (GSK), and  Medtronic (MDT). However, it's important to note that we've excluded two health-care names that passed our original screen-- Schering-Plough (SGP) and  Boston Scientific (BSX)--given the recent pressure on their share prices.

John Coumarianos has a position in the following securities mentioned above: HD, NVS. Find out about Morningstar’s editorial policies.