2 Cheap High-Quality Stocks to Buy

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar.

Investors find new investment ideas in many different places. Some tap into financial professionals for stock picks. Others read stock newsletters or visit financial websites (such as Morningstar.com). Others may turn to social media or to YouTube. And some get stock ideas from family, friends, and colleagues.

How do we at Morningstar generate stock ideas for investors to consider? Well, one way is to look at the undervalued holdings in some of our proprietary indexes.

Today, we’re looking at two undervalued stocks that were recently added to the Morningstar Wide Moat Focus Index. To be included in the index, a company must earn a wide economic moat rating from Morningstar, which means our analysts think the company possesses competitive advantages that will last for at least 20 years. And in addition, the company’s stock must be among the 40 most undervalued wide-moat stocks we cover to be included in the index.

2 Cheap High-Quality Stocks to Buy

1. Estee Lauder EL
2. Agilent Technologies A

The first name on our list of undervalued stocks today is Estee Lauder EL. Estee Lauder is a leader in the global beauty prestige market, operating in more than 150 countries. The company’s portfolio of brands includes namesake Estee Lauder, Clinique, Aveda, and Origins, among others. With brands that are category leaders in skincare, cosmetics, and fragrances, Estee Lauder is considered a preferred vendor across brick-and-mortar and digital channels. Given this status, we assign the company a wide economic moat rating. We expect Estee Lauder to generate around 6% annual sales growth over the next decade. We think Estee Lauder stock is worth $256 per share.

Our second undervalued wide-moat stock today is Agilent Technologies A. Agilent is a leading life sciences and diagnostics company. It creates tools to analyze the structural properties of various chemicals, molecules, and cells. While healthcare-related applications are Agilent’s largest end market, the company generates about half of its sales from nonhealthcare fields. We award the company a wide economic moat rating thanks to its intellectual property, ongoing innovation, and significant switching costs. We expect Agilent to boost margins in the next five years and grow revenue in the midsingle digits compounded annually. We think Agilent stock is worth $151 per share.

For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar senior analyst Julie Utterback and analyst Dan Su contributed the research behind this segment. Morningstar, Inc. licenses indexes to financial institutions as the tracking indexes for investable products, such as exchange-traded funds, sponsored by the financial institution. The license fee for such use is paid by the sponsoring financial institution based mainly on the total assets of the investable product. Please click here for a list of investable products that track or have tracked a Morningstar index. Morningstar, Inc. does not market, sell, or make any representations regarding the advisability of investing in any investable product that tracks a Morningstar index.