11 Picks for a Less-Stressful Portfolio
We screened our database for low-uncertainty, wide-moat stock picks.
The market is full of uncertainty these days, with concerns about the ever-increasing unemployment rate and questions about where the economy is headed. What would be nice is more certainty--a clearer picture of where we're headed.
At Morningstar, we rate every stock in our coverage universe along a spectrum of uncertainty, based on the range of possible scenarios we analyze for each firm. (For more on the uncertainty rating, please see the Stock Strategist article "Shedding Light on our Uncertainty Rating".) Now, to be sure, some investors crave uncertain outcomes, and for them we have our very high and extreme uncertainty ratings. But for those who prefer low or medium uncertainty, we have put together a few ideas along those lines.
Using Morningstar's Premium Stock Screener, we searched for wide-moat, low uncertainty companies with 5-star stocks. What could be more conducive to a reduced-stress portfolio? Companies with durable, long-term competitive advantages with little uncertainty about what results will look like three years from now, trading at a significant discount to our fair value estimate. Sounds like a recipe for stress-free success to us. Here's what we came up with:
|11 Low Uncertainty, Wide-Moat 5-Star Stocks*|
|Stryker Corporation (SYK)||0.54||11.81||28.91||A||1.0%|
|Novartis AG (NVS)||0.56||10.66||18.89||A||4.2%|
|Abbott Laboratories (ABT)||0.67||11.06||25.35||A||3.3%|
|Microsoft Corporation (MSFT)||0.69||11.79||21.38||A||2.1%|
|Procter & Gamble Co. (PG)||0.71||12.92||20.97||A||3.0%|
|Medtronic, Inc. (MDT)||0.72||10.07||25.27||A||2.2%|
|3M Company (MMM)||0.73||14.39||16.55||A||3.3%|
|Johnson & Johnson (JNJ)||0.74||12.12||17.77||A||3.2%|
|Walt Disney Company (DIS)||0.75||12.84||17.33||B||1.5%|
|St. Jude Medical, Inc. (STJ)||0.77||13.77||33.38||NA||0.0%|
|ExxonMobil Corporation (XOM)||0.79||11.49||11.33||B||2.4%|
* Data through 7-16-09.
The two cheapest stocks on the list, as measured by price/fair value estimate, come from the health-care sector. Heading up the list is Stryker (SYK), the medical device manufacturer. Senior analyst Julie Stralow likes the firm's "top-tier position in the highly profitable orthopedic implant market, which possesses high barriers to entry and sticky surgeon relationships." While she believes that "economic concerns appear to be disrupting Stryker's business, particularly in the medical equipment segment," she has already factored this into her valuation assumptions. Given the stock's significant discount to her fair value estimate, now may be the time to consider it for your portfolio. "With its cash-rich balance sheet and admirable free cash flow generation, Stryker remains in the enviable position of having many avenues to return value to shareholders."
The second-cheapest stock on the list is Novartis (NVS), the global pharmaceutical manufacturer. Senior analyst Damien Conover asserts that "in an industry plagued by stagnant growth, Novartis emerges as a juggernaut with diversified operating platforms and an industry-leading number of new potential blockbuster drugs." According to Damien, "the market's short-term focus on patent losses and fear of U.S. health-care reform have weighed heavily on pharmaceutical companies' valuations. However, over the long term, we believe pharmaceutical companies' pipelines will create the next generation of blockbusters mitigating the near-term generic competition. Further, we expect a relatively neutral impact from U.S. health-care reform as we believe new reform will increase drug usage, offsetting modest price concessions."
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Mike Taggart does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.