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Stock Strategist

Five Stocks That Look Like Value Traps

These beaten-down stocks are cheap for a reason.

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Regular readers of Morningstar.com are familiar with our preference for stocks with wide economic moats. Wide-moat companies tend to be leaders in attractive sectors like health care and business services, and generate returns on invested capital well above those of the average company.

If there's a problem with these types of companies, though, it's that their stocks rarely become discounted enough to show up in the bargain bin. For example, in Morningstar StockInvestor, our monthly newsletter, we publish a watch list of 50 such companies each month. These companies have wide moats, but the average trailing P/E ratio of the stocks on the list is about 34, compared with 29 for the S&P 500--not astronomically expensive, but not exactly dirt-cheap, either.

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

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