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Financial Advice

Weekly Wrap: 21 Undervalued Stocks, 7 Defensive Funds, and Portfolio Tweaks for Uncertain Times

And a new installment of Dividend-Stock Deep Dive.

Undervalued Stocks Aplenty

The stock market took investors on a wild ride this week, with more ups and downs than Cedar Point Amusement Park. The market briefly entered correction territory early in the week, as investors wrestled with changing expectations about what the Federal Reserve would do and when. (Read our equity research team's take on this week's Fed meeting.) But Morningstar markets editor Tom Lauricella reminded us that the longer-term economic and interest-rate outlooks are good. Tom called the pullback in stocks "an overdue reset by an overvalued market."

For those with the right constitution, volatility provides opportunity--and we shared lots of opportunities this week, at least 21, if my math is right. Six newly undervalued wide-moat stocks. Eleven cheap mega-cap stocks. And four bloodied but high-quality tech stocks .

Funds for Playing Defense

There's nothing like a little market choppiness to make one ask, "Does my portfolio need to be more defensive?" Of course, the answer to that question is, like most investing matters, personal. It depends on your goals, the size of your portfolio, and your risk tolerance. Morningstar director of manager research Russ Kinnel shared four defensive fund ideas a few weeks ago, and Morningstar director of global ETF research Ben Johnson chimed in with three more defensive ideas this week. The combined list is quite a hodgepodge that includes a couple of tried-and-true balanced funds, a durable dividend-stock fund, a portfolio stuffed with Treasury Inflation-Protected Securities, a multi-asset inflation hedge, a low-volatility strategy, and even a municipal-bond fund. The variety of ideas only proves that "defense" can mean different things to different investors.

Should You Tweak Your Portfolio?

Whether you're looking to take advantage of market downturns or wondering if your portfolio is defensive enough--or you're somewhere in between--be sure to watch my colleague Christine Benz's webcast, Tune Up Your Portfolio in Uncertain Times. In this free (yes, I kid you not, it's free) hour-long webcast, Christine walks viewers through a nine-step process for reviewing your portfolio in light of current market conditions and your personal goals. Those who would prefer the CliffsNotes edition can check out Christine's slides.

Stock of the Week: Microsoft

Tech stocks have really taken it on the chin in 2022, with the Morningstar U.S. Technology Index down 14% as of this writing. Why the tech-stock drubbing? Thank slowing economic growth and rising-interest-rate fears, says Morningstar chief U.S. market strategist Dave Sekera. "A significant part of the value of technology stocks is their future earnings profile, and as investors lower their growth expectations and/or discount those future earnings at a higher rate, the present value for these stocks falls further and faster than the broader market," he explained. No surprise: Microsoft MSFT has been hit hard this year. Morningstar likes the stock, even raising our fair value estimate to $352 from $345 this week. The wide-moat firm reported solid results, suggesting digital transformation-led demand remains intact, says senior analyst Dan Romanoff. Guidance was good, too. "Microsoft remains impressive in its ability to drive both growth and margins at scale and we think there is more to come on both fronts," Dan says. As of this writing, the stock trades about 16% below our fair value estimate.

New Dividend-Stock Deep Dive: Picks for 2022

Our new video segment, Dividend-Stock Deep Dive, provides income seekers with a thorough look at a new dividend topic every month. In our newest installment, host David Harrell talked with Dave Sekera about his expectations for dividend growth this year, whether dividend stocks can outperform the broader market, and what rising interest rates may mean for dividend payers. They also dug into a few dividend stocks that Dave likes, including one idea that might strike some dividend seekers as controversial: AT&T T. Watch the new segment to find out what's to like there.

--Susan Dziubinski

Editor's Picks

Best Innovative Companies to Own: 2022 Edition These companies are expected to benefit from disruptive technologies. What's Been Bugging the Bond Market? Sticky inflation and a more aggressive Fed have sent bond prices south, but the worst may be past for now.

Oil Market Asks: Omicron Who? We've raised our global consumption forecast for 2022, but our 2023 outlook is unchanged. Fed: Get Ready for Rate Liftoff With inflation high, there's nothing holding the Fed back from multiple rate increases starting in March. 11 Undervalued Mega-Cap Stocks to Consider The downturn in the market this year has pushed numerous mega-cap stocks into buying range.

What's on the Agenda for Sustainable Investing in 2022? Sustainalytics founder Michael Jantzi discusses climate change, net-zero emissions, and the role of individual investors.

Portfolio Planning and Personal Finance With Christine Benz

Assess Your Asset Allocation for Retirement Tips for customizing your own glide path. Accumulators: Is Your Retirement Plan on Track? Rules of thumb won't cut it for this important question. How to customize based on your own situation. Is the Backdoor Roth Still Legit? Although the future of the backdoor Roth is still up in the air, high-income heavy savers can still take advantage of the maneuver. Can Your Portfolio Withstand Volatility? How to determine how durable your portfolio is and strategies to tame stock market risk. Find the Right Investments for Your Retirement Portfolio Your knowledge level, desire to be hands-on, tax status, and tolerance for short-term volatility can help you identify the right investments. 4 Good Reasons to Sell Stocks Now Admonitions to "freeze!" assume a well-laid, well-maintained plan. That may not be the case for some investors. The Bucket Approach to Retirement Allocation A diversified portfolio with various time frames can help you meet your income needs during retirement.

Mutual Funds and Exchange-Traded Funds

ARKK's Claims of an Anti-Innovation Market Ring Hollow The fund's style does not explain ARK Innovation ETF's steep losses over the trailing year. Will Financial Services Funds Continue to Soar in 2022? After a hot 2021, we unpack five funds' performance. Emerging-Markets Local Debt Could Finally Be Poised to Rebound Here's three ways to gain exposure. 3 ETFs for Playing Defense in 2022 The market's rocky start to the year surely has some investors thinking about adding protection to their portfolios. Bitcoin ETF Investors Stick Tight Despite Crypto Rout A 20% drop in bitcoin hasn't fazed the ETF's owners. The Real Tax Magic of ETFs The ETF wrapper doesn't provide the same tax advantage for bonds as it does for most stocks. Here's why. The Case for Vanguard The firm still embodies founder Jack Bogle's spirit. 2 More Funds for 2022 and Beyond Put these funds from BlackRock and T. Rowe Price on your watchlist.


4 Newly Cheap Wide-Moat Technology Stocks The tech sell-off has been brutal, but bargains are starting to emerge. Why Have Tech Stocks Been Hit So Hard? U.S. markets are selling off as 2022 faces headwinds, but the widespread downturn has pushed many tech stocks down too far. It's Been Rough for Stocks, but the Outlook Is Still OK The changing outlook for the Fed continues to spark volatility. Salesforce Is on Sale Morningstar's analyst says Salesforce's stock price is right for one of the best growth stories in software. 12 Overvalued Mega-Cap Stocks to Avoid After a decade of outperformance, these mega-cap stocks are significantly overvalued today. Why Electric Vehicle Stocks Are Going in Reverse Competition from traditional automakers is highlighting lofty valuations on Tesla and others.

Sustainability Matters

As Sustainable Stocks Rally, Valuations Grow Fatter But cheap names remain, including, Adobe, and Disney. ESG Risk Management Makes Sense, but ESG Impact Is Less Straightforward Investors should first look closely at risk, then refine their decisions through an ESG lens.

Rekenthaler Report

Are Target-Date Funds Flawed? The research finds room for improvement. The Stock Market's Dominos Are Falling The bear ascends the investment ladder.

The Long View Podcast

Michael Mauboussin: Finding Easy Games The author and financial expert discusses 'expectations investing,' the problem he sees with valuation multiples, the outlook for active investing, and more.


Is Real Estate the Key to Financial Independence? A leading voice in the FIRE movement discusses her journey to financial success. 3 Semiconductor Chip Stocks Worth a Bite These investments will ride global demand, and two of them are undervalued.

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