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Morningstar

Moats On Sale

These firms have an edge on the competition and look to be trading below their fair value.
This list features stocks that meet three criteria. First, they are trading at a discount to Morningstar analysts’ estimates of their fair value (in other words, 4- or 5- star stocks). The stock star rating is calculated by comparing a stock’s current market price with that stock’s Morningstar fair value estimate. Second, companies on this list are also rated as having an economic moat. Morningstar’s ratings for economic moat (a term originally coined by Warren Buffett) capture how likely a company is to keep competitors at bay for an extended period. We think wide-moat firms’ advantages are the most sustainable (20 years or more, in our estimation), while narrow-moat firms should keep their edge for at least 10 years. Third, we wanted companies with a Fair Value Uncertainty that is Medium or lower. We are more confident in our fair value estimates for companies rated Low or Medium.
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Name
Ticker
Morningstar Rating for Stocks
Economic Moat
Price/Fair Value
The Timken CoTKRNarrow0.91
Dvk Hkqysgq-Dsnlvbfv BtpymvqJFWide0.82
Fvr Yjchtvf RqdsrYZNarrow0.76
Wlh f2 Khbh Hz DrdtRBTSGQNarrow0.93
Jdj w2 Wstt Pl Xvh SBBSZCNarrow0.93
R.Q. QnhcztCZNWide0.78
Ltvscvzy PZQ VXVKMNWide0.97
SzggKkmh FyBRJHCWide0.86
Rvjtfdn Xxkpdtphnykkyw CdkFNarrow0.74
HTW Xvsywt Mvyyt WsBMDNarrow0.86
Hpkzsgj Gwrpqk & Xyqpcwb Fhl Tlmcblhq GvbzdBNarrow0.81
Kxnp Ytbrxh XmGZXNarrow0.93
Zlm Ydwjb Srdxcxkk MpngWQBWTWide0.49
Sxmlrt Dvcxkf Nplvxnch JjbytSCCWide0.68
Zfxnnl Kxjtthjkt Mrvfn MK ZBCKVVCKNarrow0.95
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List Criteria

4- or 5-Star Stocks

The stock star rating is calculated by comparing a stock’s current market price with Morningstar’s estimate of the stock’s fair value. The bigger the discount, the higher the star rating. Four- and 5-star ratings mean the stock is trading meaningfully below fair value, while a 3-star rating means it’s trading near fair value, and 1- and 2-star stocks are trading meaningfully above fair value.

Wide or Narrow Moat Stocks

Morningstar’s ratings for economic moat (a term originally coined by Warren Buffett) capture how likely a company is to keep competitors at bay for an extended period. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors, and it’s this characteristic that Morningstar is trying to capture with the economic moat rating, which will be either wide, narrow, or none for stocks under coverage.

Medium or Low Fair Value Uncertainty

The Fair Value Uncertainty rating captures a Morningstar stock analyst’s degree of confidence about his or her fair value estimate for a stock. Our analysts score companies’ Fair Value Uncertainty (Low, Medium, High, or Extreme) based on sales predictability, operating leverage, financial leverage, and exposure to contingent events. As the Uncertainty rating goes up, so does the discount to fair value we require in order for a company to earn a 4- or 5-star rating, given the lower confidence in the precision of our fair value estimate.

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