Our 'Buy American' Moment Has Arrived for U.S. Multi-Industrials
The discounts we see now are several and sometimes compelling.
Today, we remind investors of what Ben Graham wrote about Mr. Market in The Intelligent Investor 70 years ago: “Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.” Just a few months ago, we believed greed was taking hold of Mr. Market, as our diversified coverage was split 57/43 in favor of 3-star and 2-star-rated stocks. We had no multi-industrial stock ideas.
Now, fear has spread to even tenured investors regarding the long-term implications of the coronavirus outbreak, which has had a larger impact than almost any expert predicted early on, and by all accounts is likely to remain with us for some time to come. But as was true when Warren Buffett wrote his "Buy American" New York Times op-ed in 2008, fears regarding the long-term prosperity of moaty companies make little sense when measured from our bottom-up, long-term assessment of the fundamentals of these stalwarts of American industry. That’s not a blank endorsement of every U.S. multi-industrial we cover; there are names that we still don’t believe merit a place in an investor’s portfolio at today’s prices. Nevertheless, while we could be early, and intrinsic value is hardly immutable, we think we find multiple decent and even some compelling discounts at today’s prices. Keep in mind that for companies protected by a moat (the wider, the better), the lion’s share of our assessed value lies in stages two and three of our valuation. Even assuming the coronavirus pandemic is a two-year disruption, buying the stocks of companies protected by a moat should provide downside protection for investors.
Joshua Aguilar 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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