3 Cheap Stocks From a Great Money Manager

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

T. Rowe Price recently launched a new ETF called T. Rowe Price Capital Appreciation Equity ETF TCAF. That’s pretty notable, because the manager of the new ETF, David Giroux, is considered by many, including Morningstar, to be among the best money managers in the business today. Plus, Giroux’s allocation mutual fund, T. Rowe Price Capital Appreciation PRWCX, has been closed to new investors since 2014.

The new ETF focuses exclusively on stocks. Giroux is taking a bottom-up approach to investing in U.S. companies, favoring those with capable management teams and leading market positions. He invests in those whose stocks are trading at attractive relative market valuations and that he expects to provide strong risk-adjusted returns over time.

So today, we’re scouring the portfolio of this talented manager’s new ETF for investment ideas that look undervalued according to Morningstar’s metrics.

3 Cheap Stocks From a Great Money Manager

1. Becton, Dickinson BDX
2. Fortive FTV
3. Revvity RVTY

The first undervalued stock in Giroux’s portfolio is Becton, Dickinson BDX. The world’s largest manufacturer and distributor of medical surgical products earns a narrow economic moat rating from Morningstar due to the scale of its basic surgical products segment. The company received some good news recently, as the Food and Drug Administration cleared the company’s updated pump infusion system, which had received recalls during the past several years. Although the stock rose on that bit of good news, it still looks undervalued by Morningstar’s measures.

The second cheap stock that Giroux likes is Fortive FTV. Fortive is a technology conglomerate with a broad portfolio of companies that provide mission-critical functions, such as gas detection services and radiation exposure measurements. Its companies serve a wide range of end markets, including manufacturing, utilities, medical, and electronics. Morningstar assigns Fortive a narrow economic moat rating because its businesses have large installed bases with high switching costs. We also think management has done an exceptional job of allocating capital—in particular, driving significant margin expansion in the businesses it acquires. The stock looks inexpensive by Morningstar’s standards.

The last stock on the list today is Revvity RVTY. Revvity is a name in the diagnostics and research industry that provides instruments, tests, services, and software solutions to the pharmaceutical, biomedical, chemical, environmental, and general industrial markets. The company has been evolving over the past several years after a series of acquisitions and now operates two main segments: Diagnostics is one, and discovery and analytical solutions is the other. We think the company has carved out a narrow economic moat, thanks in part to the switching costs associated with both of its segments. We think the stock is undervalued.

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

Morningstar director Alex Morozov, senior analyst Julie Utterback, and analyst Krzysztof Smalec provided the research behind this segment.

Watch “2 Cheap High-Quality Stocks to Buy” for more from Susan Dziubinski.