Susan Dziubinski: Hi. I’m Susan Dziubinski with Morningstar. Volatility has returned to the stock market during the past few months. While market losses are never fun, they can provide investors with opportunities to buy the stocks of great companies on price weakness.
Today, we’re looking at three high-quality stocks that we think investors should put on their watchlists. Specifically, these names are taken from Morningstar’s Best Companies to Own list. Our Best Companies to Own list includes companies with significant competitive advantages—or what we call wide economic moats. These companies also have predictable cash flows and are well positioned to confront an economic slowdown. These stocks aren’t undervalued today—they’re all trading near our fair value estimates. But these are stocks for investors to watch; they just might be able to be bought on weakness if volatility persists.
3 High-Quality Stocks to Buy on Weakness
The first stock on our list of names to buy on weakness is Broadcom AVGO. The company is a combination of various high-value chip and software businesses. Management is skilled at acquiring companies and then streamlining to generate strong profits and cash flows, and the company operates efficiently. We think Broadcom will continue to benefit from moderate steady growth. We expect artificial intelligence to become a material driver to the networking business, as applications like large language models require advanced network switching, where Broadcom’s chips are considered best-of-breed. We think Broadcom stock is worth $815 per share.
The next name on our list of stocks to buy on weakness is Merck MRK. We assign Merck a wide economic moat rating on the strength of its portfolio of high-margin drugs and pipeline of new drugs. New products have offset recent major patent losses. Merck’s R&D productivity is improving as the company shifts more toward areas of unmet medical need. Keytruda for cancer is one of Merck’s key blockbuster drugs with multi-billion-dollar potential. And lastly, the company’s enormous cash flows support a powerful salesforce that not only sells currently marketed drugs but also serves as a deterrent for other drug companies that are seeking to develop similar products. We think Merck stock is worth $103 per share.
The last name on our list of stocks to buy on weakness is McCormick MKC. McCormick is the leader in the global spices and seasoning market. Now the company faces headwinds including higher costs and an anticipated tightening of consumer spending. But we think that, given its solid relationships with retailers and its cost edge, McCormick can extract inefficiencies, raise prices, and reduce discretionary spending to blunt the impact. McCormick is also the leading private-label spice and seasoning producer, which only cements its competitive edge. We think McCormick stock is worth $63 per share.
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Morningstar directors Damien Conover and Erin Lash and analyst William Kerwin 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.