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Stock Strategist

20 Cheap Stocks, 20 Great Businesses

The market's selling 20 great businesses cheap. Care to go shopping?

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Times are tough. Unemployment is at a 16-year high. Unrest in the Middle East continues to drain U.S. resources and wedge uncertainty into the collective global psyche. Consumer confidence is low. Business spending is falling. Once-dominant global franchises have been reduced to shells, and many are going bankrupt. CEOs--generally an optimistic bunch--are qualifying sales expectations with cautionary disclaimers, if commenting at all. Although recent deflation has offered some relief in the form of lower gas and grocery prices, it's merely a symptom of the crushing drop in home and stock market prices that has battered investors. Fear is the sentiment, with 0% yields on short-term Treasuries providing damning evidence.

Although near-term prospects look grim, we believe recent events have created an enormous opportunity to buy many firms with long-term competitive advantages--or wide moats--at meaningful discounts to their intrinsic values. Morningstar has created an index, called the Morningstar Wide Moat Focus, that tracks our 20 cheapest wide-moat stocks. The methodology is straightforward. We narrow our coverage universe of 2,000-plus companies down to only those that we deem to have a durable competitive advantage, then we select the 20 cheapest each quarter for equal-weight inclusion in the index.

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Grady Burkett does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.