Susan Dziubinski: Hi, I'm Susan Dziubinski with Morningstar. Each quarter, we take a look at the recent transactions of some of the top money managers around today—who we call our Ultimate Stock-Pickers. Last quarter, two stocks were high-conviction purchases for four of our favorite managers. What's considered a high-conviction purchase? A high-conviction purchase is one that makes a meaningful addition to a portfolio, as measured by the size of the purchase in relation to the size of the portfolio.
Four of our managers picked up Amazon stock last quarter. Amazon has dramatically underperformed the market this year. The company reported mixed first-quarter results and issued worse-than-expected guidance for the second quarter as inflation, excess labor, and excess capacity hurt profitability. Morningstar's analyst expects profitability challenges to linger for much of the year and lowered our fair value estimate on the stock as a result. Nevertheless, we think Amazon possesses significant competitive advantages and that the stock is a bargain today. We think shares are worth $192 apiece.
Four of our managers also bought Alphabet stock last quarter. The stock has also underperformed the market this year, and the company reported mixed first-quarter results. Although Alphabet enjoyed strong growth in search advertising and its cloud business during the first quarter, its YouTube channel experienced some softness. Morningstar's analyst expects Google to maintain its leadership in the search market, and also forecasts YouTube to contribute more to the company's top and bottom lines longer-term. We think the stock is undervalued, and that shares are worth $3,600 each.
Strategist Eric Compton, senior analysts Ali Mogharabi and Dan Romanoff, and associate analyst Eden Alemayehu provided the research behind this segment.