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Our Picks

19 Stocks on a Roll, With More Room to Run

While there's no telling if their short-term momentum will continue, these stocks' long-term prospects look bright.

Karen Wallace

The market has been on a roll this year. For the year to date through July 31, the S&P 500 has gained 11.6%.

The top-performing sectors so far this year are technology (gaining more than 18%) and healthcare (up nearly 16%). Over the past three months, though, financials have been strong--up nearly 6% compared with the S&P 500's 4.1% gain. Interestingly, we still see some bargains in these three leading sectors today. Even though the healthcare and financial services sectors are fairly valued in aggregate--each trading at a 1.01 median price/fair value ratio, respectively--and technology is a little overvalued at 1.05, you can unearth some bargains if you do a little digging. 

We created a screen using Morningstar Direct software to find some wide- and narrow-moat stocks that have had the wind at their back but still look undervalued. While there's no saying if their positive momentum will continue in the short term, our analysts have confidence that these picks have some room to run over the long haul.

We screened our coverage list for stocks trading at at least a 10% discount to our fair value estimates, with a moat rating of wide or narrow (meaning we think they have competitive advantages that fend off competitors for at least a decade). We added the criterion that the stocks had outperformed the S&P 500 over the trailing three-month period. As of July 31, our screen returned 19 companies.

In healthcare, we see some compelling opportunities in pharmaceutical services firms  McKesson (MCK) and  AmerisourceBergen Corp (ABC), as well as biotechs  Vertex Pharmaceuticals (VRTX) and  Biogen (BIIB). In the tech sector five companies look appealing: IT service management company  ServiceNow (NOW); Chinese online media company  SINA Corp ;  Microsoft Corp (MSFT); software-as-a-service company  Salesforce.com (CRM); and IT service provider  Infosys (INFY). Among financial services companies, asset management firms  BlackRock (BLK) and  Blackstone Group LP (BX) are each trading at discount to our fair value estimate. 

Karen Wallace does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.