8 Undervalued Companies with 'Exponential' Growth Potential

Technology companies aren't the only ones that can profit from technological advances. Nor are startups the only ones harnessing technology to generate significantly positive growth.

Take, for example, Walmart WMT. The company used technology to effectively manage inventory for years. More recently, e-commerce has lifted U.S. sales for the retail giant.

The Morningstar Exponential Technologies Index is designed to identify companies across sectors in the early stages of developing or using transformative technologies. It features 200 companies identified by Morningstar's Equity Research team as positioned to experience meaningful economic benefits as a user or producer of promising technologies.

Morningstar has identified nine technology themes. (More on those in a minute.) Analysts score companies within those themes on a scale of 0 (no or little exposure to the theme) to 2 (significant exposure), relying on models to project growth over five, 10, and 20 years. Managers review the scores of 2 and collectively select "leaders" within each theme. Leaders are often beneficiaries of the network effect, boast cost advantages, and maintain powerful brands that block competition. They're also usually gatekeepers with extraordinary influence because of how they define processes and/or control resources. Leaders are expected to have significantly more exposure to a given theme and, as a result, should capture disproportionate economic benefits compared to other firms. Companies can be leaders in more than one theme.

Here's how we define the nine themes, as well as the leader within each theme that's most undervalued as of this writing.

Big Data and Analytics Capabilities with data sets too large and complex to manipulate or interrogate with standard methods or tools. Related subthemes include the Internet of Things, machine learning, and artificial intelligence.

Most undervalued leader

Baidu BIDU

Economic Moat: Wide

Industry: Internet Content & Information

+/- Price/Fair Value (as of 2/25/19): -36%

Networks and Computer Systems Technology leaps ranging from hyperconnectivity and integrated systems to service continuity and new software-defined architectures will have a massive impact on the way people think of connecting applications and software with hardware.

Most undervalued leader

Qualcomm QCOM

Economic Moat: Narrow

Industry: Semiconductors

+/- Price/Fair Value (as of 2/25/19): -26%

Nanotechnology The branch of technology that deals with dimensions and tolerances of less than 100 nanometers, especially the manipulation of individual atoms and molecules. We see a range of potential applications spanning medicine, computing, manufacturing, and travel.

Most undervalued leader

Applied Materials AMAT

Economic Moat: Wide

Industry: Semiconductor Equipment & Materials

+/- Price/Fair Value (as of 2/25/19): -20%

Medicine and Neuroscience Sciences, such as neurochemistry and experimental psychology, that deal with the nervous system and brain. Key advancements in unlocking the human genome have created an infrastructure of biomarkers, while paradigm shifts in biotechnology that can alter the immune system are radically changing the way we treat diseases.

Most undervalued leader

Bristol-Myers Squibb BMY

Economic Moat: Wide

Industry: Drug Manufacturers - Major

+/- Price/Fair Value (as of 2/25/19): -22%

Energy and Environmental Systems This involves the exploration of renewable energy sources--including solar, wind, water, and batteries. As organizations set processes to help reduce environmental impacts and increase operating efficiency, new avenues for technological advancement across sectors will open up.

Most undervalued leader

Sociedad Quimica Y Minera De Chile SQM

Economic Moat: Narrow

Industry: Chemicals

+/- Price/Fair Value (as of 2/25/19): -32%

Robotics The branch of technology that deals with the design, construction, operation, and application of robots. Advances in robotics, specifically when combined with other exponential technologies, have seemingly infinite potential applications, spanning technology, industrial, medical and consumer-facing channels.

Most undervalued leader

Fanuc FANUY

Economic Moat: Wide

Industry: Diversified Industrials

+/- Price/Fair Value (as of 2/25/19): -21%

3-D Printing A process for making a physical object from a three-dimensional digital model. The emerging trend is ready for mainstream consumption and has ample potential to disrupt several industries, from industrial manufacturing and medicine to consumer products and retail.

Most undervalued leader

Zimmer Biomet Holdings ZBH

Economic Moat: Wide

Industry: Medical Devices

+/- Price/Fair Value (as of 2/25/19): -10%

Bioinformatics The science of collecting and analyzing complex biological data. The "quantified sell" trend of acquiring data to quantify aspects of an individual's daily life has exponential potential to positively impact both the duration and quality of life.

Most undervalued leader

Bristol-Myers Squibb

Economic Moat: Wide

Industry: Drug Manufacturers - Major

+/- Price/Fair Value (as of 2/25/19): -22%

Financial Services Innovation Search for and acknowledgement of nontraditional emerging funding sources, platforms, currency, and stored and transferred value. We not only think about opportunities to efficiently expand production, but also the underlying currencies used (including cryptocurrencies), as well as structural shifts in technology and payment delivery methods.

Most undervalued leader

Tencent TCEHY

Economic Moat: Wide

Industry: Internet Content & Information

+/- Price/Fair Value (as of 2/25/19): -31%

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