10 Top Stock Picks of the Best Managers

Investors get stock picks from many different sources. Some reply on trusted advisors. Others prefer hunting for ideas on financial websites, YouTube channels, or investment newsletters. Still others get stock tips from colleagues at work or friends at dinner parties.

At Morningstar, we provide investors with plenty of stock picks from our analysts, from one of our indexes, or from our database by using a variety of screens. Today, we’re tapping into another source of stock ideas: the portfolios of the best fund managers.

To find the best stock investors among current active fund managers, we screened on the following:

• Actively managed funds that land in Morningstar’s U.S. large-value, U.S. large-blend, or U.S. large-growth categories.
• Funds with at least one share class earning Morningstar Medalist Ratings of Gold with 100% analyst coverage.
• Funds that hold 100 stocks or fewer as of their most recently reported portfolios.

Eleven separate fund portfolios passed our screen. We then ran a Stock Intersection report in Morningstar Direct to find the 10 most popular stocks (as determined by portfolio concentration and number of funds that own the stock) across all 11 fund portfolios.

10 Top Stock Picks of the Best Managers

These are the most popular stocks among our list of the best investors as of their most recent portfolios. Data is as of Feb. 12, 2024.

1. Microsoft MSFT
2. Amazon.com AMZN
3. Visa V
4. Alphabet GOOGL
5. Mastercard MA
6. Union Pacific UNP
7. ConocoPhillips COP
8. Bank of America BAC
9. Danaher DHR
10. Marsh & McLennan MMC

This list is a good reminder that not every stock pick is a stock to buy: Many of the top stock picks on this list look fairly valued or overvalued today. As such, they make excellent watchlist candidates to buy on weakness.

Here’s a little bit about each stock pick, along with some commentary from the analyst who follows the company. All data is as of Feb. 12, 2024.

Microsoft

• Number of best managers who own the stock: 7
• Morningstar price/fair value: 0.99
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Technology

Microsoft is the top stock pick from our best managers in terms of overall weighting and number of managers who own the stock. While Microsoft is classified as a growth stock, it’s a holding in the portfolios of two of our value managers, too. That’s not entirely surprising: Microsoft looked undervalued according to our metrics for much of 2022 and in the first quarter of 2023. But today, the stock looks about fairly valued by our measures. We think Microsoft stock is worth $420.

Here’s Morningstar senior analyst Dan Romanoff’s commentary after Microsoft’s most recent earnings release:

Wide-moat Microsoft continues to impress with solid second-quarter results, including upside on both the top and bottom lines. Even though management will not admit as much, we continue to see indicators that the demand environment has improved at least modestly. Artificial intelligence stole the show again this quarter as it contributed 600 basis points to Azure growth, twice the contribution from just last quarter, and helped land larger and longer-term Azure deals. Azure growth, then, was meaningfully better than expected. We find Microsoft’s outlook encouraging, especially for Azure. These factors drive us to raise our revenue growth and margin estimates by approximately 1 percentage point each over the next five years, which increases our fair value estimate to $420 per share from $370. Despite this increase, we see the shares as fairly valued.

We believe these results reinforce our long-term thesis centering on the proliferation of hybrid cloud environments and Azure as the firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace. We center our growth assumptions on Azure, Microsoft 365 E5 migration, and traction with the Power Platform for long-term value creation. We also see AI contributing more meaningfully and more quickly to results.

For the December quarter, revenue grew 18% year over year as reported, or 16% in constant currency, to $62.02 billion, compared with the guidance midpoint of $60.90 billion. We calculate Activision added about 400 basis points to growth. Relative to the year-ago period, as reported, productivity and business processes grew 13%, intelligent cloud grew 20%, and more personal computing grew 19%. Compared with guidance, both PBP and IC came in above the high end, while MPC was in line with the high end. Good sales execution, a hallmark of this management team, helped drive strong renewals once again.

Amazon.com

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 0.93
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Consumer Cyclical

Like Microsoft, the second stock pick from our best managers also appeals to both growth and value managers alike: Amazon. This growth stock fell well below our fair value estimate in 2022 as its stock price plummeted. Since then, Amazon stock has flourished, gaining more than 80% in 2023. Today, the stock of this wide-moat company trades just 7% below our fair value estimate of $185.

Morningstar’s Romanoff had this to say about Amazon’s latest earnings report:

Wide-moat Amazon reported strong fourth-quarter results and offered a mixed outlook relative to our expectations, including in-line revenue and better profitability. Improvements in fulfillment and cost to serve continue to drive stronger-than-anticipated profitability in retail. Segment results were good overall, with advertising coming in the strongest relative to our model. After several quarters of strong performance on the profitability front, we are raising our operating margin outlook by 160 basis points for 2024 and similar margin expansion over the next several years. In turn, we raise our fair value estimate to $185 from $155. After a strong run in the shares over the last year, we see the stock as fairly valued.

We continue to see positive developments on the demand front on multiple vectors. Fourth-quarter revenue accelerated to 14% year-over-year growth as reported and 13% in constant currency, and came in at $170.0 billion, compared with the high end of guidance at $167.0 billion. The two key segments, Amazon Web Services, or AWS, and advertising, grew 13% and 27% as reported, respectively, over the year-ago period. Amazon’s advertising growth continues to outpace that of its large internet peers, albeit off of a smaller revenue base. Relative to our model, online stores, third-party seller services, or 3P, and advertising drove the vast majority of upside—consistent with last quarter. Subscription services were ahead, AWS and other were in line, and physical stores were slightly shy of our assumptions.

Margins were good across segments, and we continue to believe there is room for further improvements. Profitability was impressive, with operating profit coming in at $13.2 billion, compared with the high end of guidance at $12.0 billion, resulting in an operating margin of 7.8%, compared with 1.8% a year ago, and representing the best fourth quarter in at least a decade.

Visa

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.06
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Financial Services

The first of four financial-services names on our list of top stock picks from the best managers, Visa stock looks 6% overvalued. This wide-moat company is an established market leader in the payments industry, and we think it still enjoys good growth prospects. We expect the global trend toward digital payments and away from cash payments still has room to run, which bodes well for Visa. We think Visa stock is worth $260.

Morningstar senior analyst Brett Horn had this to say after Visa’s most recently reported earnings:

Visa’s fiscal first-quarter results showed growth slowing a bit but remaining solid. We think that as postpandemic tailwinds abate, the company’s growth will move more in line with our long-term expectations, and this quarter supports that view. While growth may moderate near-term, we still see the long-term outlook for Visa as quite bright, given the company’s wide moat and ongoing secular tailwinds. We will maintain our $260 fair value estimate and see the shares as fairly valued.

Net revenue increased 9% year over year on a constant-currency basis, down from the low-double-digit growth Visa saw in most of fiscal 2023. Payment volume in the quarter increased 8% year over year on a constant-currency basis, and transactions were up 9%.

Cross-border volume remains a key area to watch, in our view. Constant-currency cross-border volume excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 16% year over year in the quarter, down from 18% last quarter. We expected growth to continue to moderate as we move past the postpandemic bounceback in travel. While growth is this area is still healthy, this tailwind increasingly looks to be subsiding.

Excluding one-time items, operating margin (on a net revenue basis) improved to 69.1% from 68.4% last year. Despite somewhat lower growth, Visa continues to see some scale benefits. However, management’s guidance suggests expenses will grow in line with net revenue for the full year.

Client incentives increased to 28.2% from 26.0% last year. With incentives resuming their upward march now that pandemic-related distortions have tapered off, margin improvement on a gross revenue basis will be much harder to come by.

Alphabet

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 0.86
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Communication Services

More than half of the best managers on our list own Alphabet stock. Like Microsoft and Amazon, this stock pick came into 2023 looking quite undervalued, after the growth stock shakeup in 2022. But Alphabet stock soared in 2023, finishing the year up nearly 60%. Despite the price runup last year, the stock of this wide-moat company still looks 14% undervalued when compared with our $171 fair value estimate.

Morningstar senior analyst Ali Mogharabi expressed this take on Alphabet’s fourth-quarter results:

The network effect continued to drive growth at Google search and YouTube during Alphabet’s fourth quarter. In addition, as we expected, increasing demand for artificial intelligence accelerated cloud revenue growth. However, continuing weakness in Google’s advertising technology business, or Google network, pressured total advertising growth a bit.

We expect further declines in the network segment this year and next, as we still think that Google’s owned and operated properties remain the top priority for advertisers. We also believe that more advertisers will likely use non-Google ad-tech platforms when they purchase on non-Google properties. This has been a trend for more than 10 years, during which network revenue has declined to 13% of total advertising revenue from nearly 23%.

We have increased our revenue projections for Alphabet as the acceleration in cloud revenue growth, further monetization of YouTube, and the continuing steady growth in search likely will more than offset the impact of declining network segment revenue. In addition, we have increased our margin assumptions through 2028, given the cloud segment’s margin expansion and the success of the firm’s overall cost-control and efficiency efforts. Our model adjustments result in a $171 fair value estimate, up from $161.

Alphabet reported total fourth-quarter revenue of $86.3 billion, up more than 13% from last year. The growth in search (13%) and YouTube advertising (16%) more than offset the 2% decline in network revenue. Cloud growth accelerated year over year to 26% from 22.5% in the previous quarter as the number of cloud clients and usage per client increased. Strong subscriber growth in YouTube Premium, YouTube TV, YouTube Music, and Google One drove the 23% growth in Google’s other services revenue.

Operating margin expanded more than 350 basis points from the same quarter last year to 27.5%, resulting in operating income of $23.7 billion.

Mastercard

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 1.09
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Financial Services

Mastercard looks about 9% overvalued to us today. This wide-moat company holds the number-two position in the global electronic payment industry; Visa takes the top slot. Mastercard also should benefit from the move away from cash and toward digital payments. We assign Mastercard stock a fair value estimate of $421.

Here’s what Morningstar’s Horn said about Mastercard’s recent earnings release:

Mastercard’s fourth-quarter results were basically in line with what we saw from its peer Visa. Over the past few years, both companies have been buffeted by the pandemic and the subsequent recovery, as well as one-time issues like Russia. While macro uncertainty still exists, we think results have now largely normalized, and we expect growth will hold at a level roughly in line with our long-term expectations. We will maintain our $421 fair value estimate for the wide-moat company and see shares as roughly fairly valued at the moment.

Net revenue increased 13% year over year, or 11% on a constant-currency basis. Gross dollar volume increased 10% year over year on a constant-currency basis, and switched transactions increased 12%. Growth in both metrics declined modestly from last quarter.

We think cross-border volume remains a key area to watch, given the outsize fees for these transactions. Constant-currency cross-border volume excluding intra-Europe transactions, which are priced similarly to domestic transactions, grew 19% year over year in the quarter, down from 24% growth last quarter. We expect growth to continue to decline as we move past the postpandemic bounceback in travel. While growth in this area is still healthy and a bit above our long-term expectations, this tailwind looks to be waning.

Adjusted operating margins (on a net revenue basis and excluding one-time items) improved to 56.2% from 55.0% last year, as the company appears to be achieving some scale benefits. However, client incentives increased 18% year over year on a constant-currency basis. With incentives resuming their upward march now that pandemic-related distortions have tapered off, margin improvement on a gross revenue basis will be much harder to come by.

Union Pacific

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 1.18
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Core
• Sector: Industrials

The first nongrowth stock on our list of top stock picks from the best managers, Union Pacific is 18% overvalued relative to our fair value estimate of $209. The company, like all North American railroads we cover, earns a wide economic moat rating, thanks to its cost advantages and efficient scale.

Here’s what Morningstar senior analyst Matthew Young had to say after digesting Union Pacific’s latest earnings:

Wide-moat Class I railroad Union Pacific’s fourth-quarter freight revenue flipped positive year over year, rising about 1%, partly because of a rebound in intermodal activity. Overall, total volume growth and positive core pricing were partly offset by lower all-in yield (revenue per carload). Revenue was mostly in line with our forecast.

Total yield fell 3% year over year (below our forecast) on unfavorable mix and lower fuel surcharges. Consolidated volume, however, rose 3% (above our expectations), as carload volume, excluding intermodal, rose about 2% and intermodal activity jumped 5% after declining most of the year. Intermodal volume and rates have been facing scant retailer restocking and excess capacity in the competing truckload sector; however, these headwinds are finally stabilizing industrywide. That said, UP lost an international intermodal contract (a surprise to us), which will hit volumes in 2024, thus tempering (what we expect to be) otherwise improving underlying container demand.

On the carload side, growth came from solid fall fertilizer demand, metals and minerals, plastics, and healthy business development for grain and petroleum products. Regarding automotive, the UAW strike offset otherwise solid restocking activity. Looking ahead, given management's "muted" volume outlook for 2024 (including lost intermodal business), we may temper our current 2% growth forecast.

UP's adjusted operating ratio (expenses/revenue) finally flipped positive, improving 10 basis points to 60.9%, and met our forecast. Gains came from increased network efficiency/fluidity, partly offset by wage (new union contract) and cost inflation. Management commentary suggests OR gains (which we still expect) won't come easy in 2024 due in part to sticky cost inflation.

Overall, we don't expect to drastically alter our DCF-derived $204 per share fair value estimate on account of fourth-quarter results, save for a slight increase from the time value of money.

ConocoPhillips

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.08
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Value
• Sector: Energy

The first stock pick from the best managers that’s classified as a value stock, ConocoPhillips is held exclusively by the value managers on our list. This U.S.-based independent exploration and production firm earns a narrow economic moat rating. The stock trades 8% above our fair value estimate of $101.

Morningstar director Allen Good had this take on the firm’s fourth-quarter earnings:

ConocoPhillips’ reported adjusted earnings decreased to $2.9 billion in the fourth quarter, compared with $3.4 billion a year earlier, largely on lower prices but offset by higher volumes. Following its three-tier capital return framework, it paid out $1.4 billion in dividends and variable return of cash and repurchased $1.1 billion in shares. The company also announced it plans to return $9 billion to shareholders in 2024, implying a 6.7% yield. This marks a decrease from the $11 billion distributed in 2023 but is a function of the expectation for lower prices and the company’s variable distribution framework.

Management is maintaining investment discipline with 2024 capital expenditure guidance between $11.0 billion and $11.5 billion, in line with 2023’s capital expenditure of $11.25 billion.

Production during the quarter grew by 144 mboe/d to 1,902 mboe/d. Adjusting for acquisitions and dispositions, production increased by 75 mboe/d. Management anticipated 2024 production of 1.91 mboe/d to 1.95 mboe/d with first-quarter production expected to be between 1.88 mboe/d and 1.92 mboe/d.

Operating cash flow excluding working capital changes totaled $5.3 billion during the quarter. We plan to incorporate the latest guidance and results into our model, but we do not anticipate a material change to our $101 fair value estimate, and our narrow moat rating is unchanged. Shares look modestly overvalued, based on our long-term oil price assumption of $60/bbl, but Conoco remains one of the most compelling options in the sector given its strong capital framework and steady growth outlook, both of which preserve exposure to higher commodity prices but offer downside protection.

Bank of America

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 0.94
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Value
• Sector: Financial Services

Bank of America stock looks 6% undervalued relative to our $35 fair value estimate. As one of the largest financial institutions in the United States, Bank of America has carved out a wide economic moat. We think it boasts one of the best retail branch networks and overall retail franchises in the United States and that its scale and scope will continue to be important as the role of technology in banking grows.

After examining fourth-quarter results, Morningstar analyst Suryansh Sharma noted:

Wide-moat-rated Bank of America reported fourth-quarter earnings per share of $0.35, lower than the FactSet consensus estimate of $0.53. Results were affected by an FDIC special assessment of $2.1 billion for uninsured deposits of certain failed banks, which reduced EPS by $0.20, and a noninterest income charge of $1.6 billion as a result of the cessation of the Bloomberg Short-Term Bank Yield Index, which reduced earnings by $0.15 per diluted common share. Excluding the nonrecurring charges, reported EPS came in at $0.70, largely in line with our expectations.

Bank of America shares have rallied around 30% from their October-end lows as the market got excited about the prospect of interest-rate cuts by the Federal Reserve in 2024. Investors had penalized the bank earlier in 2023 for its longer-duration securities exposure when interest rates were rising. The longer-duration securities portfolio weighed on the company’s net interest income, as these assets were stuck on the books while earning lower yields. The prospect of lower interest rates in 2024 has ameliorated some concerns related to the banks’ long-duration exposure and unrealized losses. Relatively speaking, we think Bank of America’s balance sheet is well positioned for interest-rate cuts and net interest income should hold up reasonably well. We do not plan to materially change our $35 fair value estimate as we fully incorporate fourth-quarter results. The bank is now trading close to this fair value estimate, and we believe investors should wait for a bigger margin of safety as they consider this name.

Danaher

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 0.99
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Care
• Sector: Healthcare

The only stock pick on our list from the healthcare sector, Danaher stock looks about fairly valued. The company focuses largely on manufacturing scientific instruments and consumables; we assign the company a narrow economic moat rating thanks to the switching costs and intangible assets its businesses provide. We think shares are worth $243.

Here’s Morningstar senior analyst Julie Utterback’s commentary about Danaher’s fourth-quarter results:

As previewed at a recent investor conference, narrow-moat Danaher turned in strong fourth-quarter 2023 results on the strength of its Cepheid diagnostic operations. However, its forecast for 2024 looks weaker than we anticipated with continued softness expected especially in early 2024 when comparable periods look tough. While disappointing, we are not changing our long-term expectations or $243 fair value estimate materially for Danaher.

After the pandemic boom years, Danaher's results continued to reset in the fourth quarter with revenue down in the low double digits on a core basis (in constant currency and organically), which was better than the high-teens decline that management previously expected. Cepheid's respiratory tests—particularly its differentiated four-in-one test for COVID-19, respiratory syncytial virus, and two flu strains—appeared quite strong. Fourth-quarter adjusted EPS declined in the high teens, though, as margins declined on a deleveraged fixed-cost structure and as pandemic-related demand faded.

While our long-term view for Danaher has not changed materially, management’s initial guidance implies weaker profits than we were expecting in 2024 as bioprocessing remains a challenging market, particularly in China. In 2024, management expects a low-single-digit decline in core revenue with a weaker first half of the year than the second half as comparable periods look tough early in the year. The company expects declines in its biotechnology and life science end markets while it expects mild diagnostic growth in 2024. With Danaher’s focus on continuous improvement, operating margin expansion looks possible in 2024, but despite this dynamic, high nonoperating items like a higher expected tax rate and share count may constrain adjusted EPS somewhat. Once the firm’s operating headwinds fade, though, we expect Danaher’s annual growth to rebound and eventually normalize in the high single digits for revenue and low double digits for earnings.

Marsh & McLennan

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 1.25
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Core
• Sector: Financial Services

The final stock pick on our list, Marsh & McLennan, is also the most expensive: The stock is trading 25% above our fair value estimate of $157. Still, the stock is held by all the best managers practicing value or blend strategies. The company’s strong customer relationships and global footprint underpin our narrow economic moat rating.

Morningstar’s Horn had this to say about Marsh & McLennan’s fourth-quarter earnings:

Marsh McLennan produced a solid fourth quarter, but we see signs that growth may be normalizing. The company has been riding a number of tailwinds recently, and some of these benefits are likely starting to taper off. We will maintain our $157 fair value estimate for the narrow-moat company and see the shares as overvalued.

Overall revenue grew 7% year over year on an organic basis during the quarter and 9% for the full year. Higher interest rates had a 1% positive impact on growth. While we appreciate the favorable operating environment the company is enjoying now, we think Marsh McLennan will ultimately return to the low- to mid-single-digit growth it has generated historically.

During the fourth quarter, the brokerage side of the business grew 8% year over year on an organic basis, or 6% excluding the impact of higher interest rates on fiduciary interest income. We think the company is still benefiting from a harder insurance market, but the impact is waning as insurance pricing is starting to level off.

The consulting side of the business grew 7% year over year on an organic basis during the quarter. Mercer saw 5% growth, while Oliver Wyman, which tends to be more volatile quarter to quarter, enjoyed 9% growth. We think macroeconomic conditions for this side of the business remain favorable overall, with management pointing to low unemployment as a benefit.

Adjusted operating margin in the fourth quarter improved to 23.3% from 22.0% last year. However, we estimate that higher fiduciary interest income was responsible for almost all the margin improvement. While we would hesitate to predict the direction of interest rates, we think there is now as much potential downside as upside on this front.

Who Are the Best Managers?

Eleven large-cap funds passed our screen and therefore qualify as our best managers.

1. Diamond Hill Large Cap DHLYX
2. Dodge & Cox Stock DODGX
3. Hartford Stock HSTAX
4. JPMorgan Equity Income OIEJX
5. Loomis Sayles Growth LSGRX
6. MFS Value MEIJX
7. Morgan Stanley Growth MSEQX
8. Oakmark OAKMX
9. Parnassus Core Equity PRBLX
10. Principal Blue Chip PGBHX
11. Vanguard Dividend Growth VDIGX

Five of the funds land in Morningstar’s U.S. large-value category: Diamond Hill Large Cap, Dodge & Cox Stock, JPMorgan Equity Income, MFS Value, and Oakmark. Hartford Stock, Parnassus Core Equity, and Vanguard Dividend Growth are categorized as U.S. large-blend funds. And Loomis Sayles Growth, Morgan Stanley Growth, and Principal Blue Chip hail from the U.S. large-growth category.

What Are the Morningstar Economic Moat Rating, the Morningstar Fair Value Estimate, and the Morningstar Uncertainty Rating?

Morningstar thinks that companies with economic moats possess significant advantages that allow them to successfully fend off competitors for a decade or more. Companies can carve out their economic moats in a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few. Companies that we think can maintain their competitive advantages for at least 10 years earn narrow economic moat ratings; those we think can successfully compete for 20 years or longer earn wide economic moat ratings.

The Morningstar fair value estimate represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

Lastly, the Uncertainty Rating captures the degree of uncertainty about our fair value estimate of a stock. The future cash flows of some companies are more difficult to calculate than others, thanks to factors such as financial leverage, the economic sensitivity of a company’s sales, its pricing power, and so on. When investing in companies with less certain future cash flows, investors should demand a larger margin of safety before buying that company’s stock.