3 of the Best Core Stocks to Own
These core stocks with wide economic moats are good long-term investments if you can buy them at a discount.
Susan Dziubinski: Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. Each week on the podcast, Morningstar Chief US Market Strategist Dave Sekera recommends a handful of stocks to buy. Dave’s picks are always names that are trading below what Morningstar thinks they’re worth.
But besides valuation, Dave’s stock picks typically share a few other traits. For starters, they’re frequently stocks of companies with wide economic moats. We think wide-moat companies have advantages that will allow them to fight off competitors for at least two decades. Dave prefers companies that generate reliable cash flows, too.
In today’s bonus stock-pick segment, we’re focusing on three stocks that Morningstar considers to be core stocks, and they’ve also been picks of Dave’s in the past. We think these are some of the best core stocks to own for the long term, but investors should only buy these stocks when they’re trading at a discount to Morningstar’s fair value estimates.
3 of the Best Core Stocks to Own
Alphabet is one of the best core stocks to own. We think the company is a conglomerate of stellar businesses, and we award it a wide economic moat rating. In fact, Alphabet’s moat is underpinned by four of our five moat sources: intangible assets, network effect, cost advantage, and customer switching costs. While antitrust concerns around Alphabet’s core search business have made headlines, we expect the firm to remain at the forefront of a variety of verticals, including search, video, and cloud computing. And it’s an AI leader with its full-stack AI approach driving success across its business segments.
Read Morningstar’s full report on Alphabet.
Amazon is another best core stock to own. We assign the company a wide economic moat rating, and our rating here is also based on four moat sources, which are network effects, cost advantages, intangible assets, and switching costs. Amazon dominates its served markets, most notably for e-commerce and cloud services. On the e-commerce front, Amazon continues to win market share despite its size, and we continue to expect it to do so as it makes inroads in groceries and luxury goods. And we see technology advancements in Amazon Web Services and a bigger push into service enterprise customers, helping the firm maintain its lead there.
Read Morningstar’s full report on Amazon.
Microsoft is the last of our best core stocks to own. Microsoft delivers a wide variety of platform-as-a-service and infrastructure-as-a-service solutions at scale. Here we have another wide-moat company with that moat supported by switching costs, network effects, and cost advantages. We think Azure is the centerpiece of Microsoft, and Office 365 retains its virtual monopoly in Office productivity software. The company continues to put up impressive revenue growth with high and expanding margins and deepening ties with customers. We expect solid overall growth despite the company’s size and slightly improving margins over time.
Read Morningstar’s full report on Microsoft.
For more stock ideas, be sure to tune in to The Morning Filter each week wherever you get your podcasts and visit Morningstar.com, too.
Morningstar director Eric Compton and senior analyst Malik Ahmed Khan provided the research behind this segment.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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