3 Stocks the Best Value Managers Are Buying
As value stocks rebound, here’s where the smart money is investing.
Susan Dziubsinki: I’m Susan Dziubinski with Morningstar. Value stocks staged a comeback in the third quarter. The Morningstar US Large Value Index outperformed the Morningstar US Large Growth Index by 6 full percentage points last quarter. And the indexes’ returns are running neck and neck for the year to date.
Given the rebound in value stocks, we decided to take a look at what some of the industry’s best value fund managers have been buying. Check out the link beneath this video to find out who makes our list of the best value managers. Now, not all of the stocks they bought look attractively priced, according to Morningstar today. But these stocks are ideas to research further and consider buying on weakness.
3 Stocks the Best Value Managers Are Buying
Four of the best value managers recently bought CVS. CVS has spent the last decade becoming a leader in managed care, building a one-stop shop that features a top-tier retail pharmacy, health insurer, and pharmacy benefit management franchise. But CVS has been struggling lately. The company has cut its earnings outlook in three back-to-back-to-back quarters, as rising medical utilization costs in its Medicare Advantage business have hurt company performance. In fact, rumors have been swirling about the company’s future, with some reports suggesting that CVS may split its retail and insurance businesses into two separate companies. Despite these challenges, Morningstar thinks CVS stock looks cheap relative to the company’s long-term prospects; we think management will be able to accelerate bottom-line growth to the mid- to high to single digits in the long run. CVS’ shares are trading well below our $93 fair value estimate.
Three of our favorite value fund managers recently bought shares of Abbott. Abbott makes and markets cardiovascular and diabetes devices, adult and pediatric nutritional products, diagnostic equipment and testing kits, and branded generic drugs. Abbott has seen broad-based strength across its portfolio of products this year. But the company has faced some headwinds. First, ongoing lawsuits around its infant formula have put some pressure on the stock. And second, foreign exchange has been a headwind because a sizable chunk of Abbott’s revenues come from outside the United States. Even though top value managers see opportunity in the stock, Morningstar thinks Abbott stock looks a little overpriced today; we think shares are worth $104.
And lastly, two of the best value managers recently bought Equifax. As one of the big three credit bureaus in the United States, Equifax has carved out a wide economic moat, which means we think the company will remain competitive for 20 years or more. Given the fixed costs in the company’s data-intensive business, Equifax has been able to enjoy strong operating leverage from incremental revenue. Specifically, it’s been adept at adding new capabilities and expanding its geographic footprint. We think the stock is worth $295 per share.
For more stock ideas from the best money managers, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.
Morningstar senior analysts Julie Utterback and Debbie Wang and analyst Rajiv Bhatia contributed the research behind this segment.
Watch 2 Dirt Cheap Stocks to Buy if You Want to Take a Flier for more from Susan Dziubinski.
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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