Morningstar’s latest analysis shows the best companies to own now have big competitive edges and are underpriced. These top companies have leaders who make smart money moves. This means they could give investors steady cash flows and strong long-term gains.
Key Takeaways
- Morningstar’s Best Companies to Own list highlights the 10 most undervalued stocks from their top companies.
- These companies possess durable competitive advantages and are led by management teams focused on creating shareholder value.
- Investing in undervalued, high-quality stocks can provide a hedge against market volatility and offer attractive long-term returns.
- Evaluating a company’s fundamentals, industry trends, and competitive position is key to identifying the best stocks to buy now.
- Diversifying your portfolio and aligning your investments with your financial goals and risk tolerance are crucial for long-term investing success.
Top Companies with Undervalued Stock Prices
In today’s strong market, smart investors look for undervalued stocks that could grow a lot. Yum China and Estee Lauder are two companies that catch the eye. They are priced way below what they’re really worth.
Yum China: Opportunities for Expansion and Margin Improvement
Yum China runs KFC, Taco Bell, and Pizza Hut in China. Its stock is 59% lower than what Morningstar thinks it should be, at $76 per share. This is a great chance to invest, as Yum China is growing fast in China’s fast-food industry. They can also improve their profits through better operations and digital investments.
Estee Lauder: Benefiting from Premium Beauty Brands
Estee Lauder is a top name in premium beauty brands. Its stock is 47% below Morningstar’s fair value of $210 per share. The company is set to gain as people buy more high-end brands in both rich and poor markets. But, it needs to update its cosmetics line to stay ahead.
By picking these undervalued stocks, investors can tap into companies with solid basics and growth chances. This could lead to big gains over time.
| Company | Ticker | Valuation | Key Drivers |
|---|---|---|---|
| Yum China | YUMC | 59% Undervalued | Expansion in China’s fast-food industry, margin improvement through digital investments |
| Estee Lauder | EL | 47% Undervalued | Benefiting from consumer shift to premium beauty brands, portfolio refresh required |
“By identifying these types of undervalued stocks, investors can gain exposure to companies with strong fundamentals and growth prospects, potentially unlocking significant long-term value.”
Polaris: Capitalizing on Innovation and Brand Reputation
Polaris has been a top name in making recreational vehicles for over 70 years. It started in 1954 in Roseau, Minnesota. The company has always led in innovation, changing the game with its snowmobiles, ATVs, motorcycles, boats, and electric vehicles.
Its strong brand and focus on research and development have driven its success. In 1985, Polaris launched its first 4-wheel ATV, the Trail Boss. This move made it a leader in the powersports market. Since then, Polaris has kept innovating. It introduced the RANGER side-by-side utility vehicle in 1998 and its first electric model, the RANGER XP Kinetic, in 2020.
Even with tough competition, Polaris keeps up its high standards and uses its brand to grow. It plans to spend $300 million on R&D in 2022. The goal is to make $100 million from aftermarket sales with a 30% EBITDA margin by 2024. By 2027, Polaris aims for 25% growth in electric vehicles, proprietary tech, and accessories, and wants $13 billion in sales.
Recently, Polaris saw a 12% drop in sales in the second quarter of 2024 due to economic and industry issues. But, the company is taking steps to bounce back. It’s cutting costs, making operations more efficient, and focusing on innovation. With a strong focus on making things better and staying innovative, Polaris is set to keep leading in the recreational vehicle market.
Polaris stock trades 46% belowMorningstar’s fair value of $145 per share. This makes it a great chance for investors to grow their portfolios.
Ambev: Latin America’s Largest Brewer with Favorable Industry Structures
Ambev is the top brewer in Latin America and the Caribbean. It’s part of the big company Anheuser-Busch InBev. In countries like [https://bykennethkeith.com/top-stocks-to-buy-now-expert-picks-for-investors/]Brazil, Ambev makes, sells, and distributes beer and PepsiCo products. It uses its big network and brand collection to its advantage.
3G Heritage and High Profitability
Ambev started with the 3G capital, a firm known for making companies profitable. This background helps Ambev stay profitable. Morningstar says if Ambev fixes its raw material costs, its profit could go up by 3 points by 2024.
Premiumization as a Growth Driver
Ambev is also making the most of the trend towards premium beer in Latin America. By focusing on high-end brands like Corona and Budweiser, it’s winning more customers in profitable segments. This strategy is helping Ambev grow and increase profits over time.
| Metric | Value |
|---|---|
| Ambev’s Q1 2024 Beer Volume Growth in Brazil | 3.6% |
| Ambev’s Q1 2024 Net Revenue per Hectoliter Growth in Brazil | 0.9% |
| Ambev’s Q1 2024 Non-Alcoholic Beverages Volume Growth in Brazil | 6.5% |
| Ambev’s Q1 2024 EBITDA Growth | 12% |
| Ambev’s Price to Earnings (P/E) Ratio | 12.94 |
| Ambev’s Dividend Yield | 5.48% |
With its strong 3G background, focus on premium brands, and good market conditions in Latin America, Ambev is a great choice for investors. It offers a chance to profit from the growing beer and beverage market in the region.
“Ambev’s focus on premium and super-premium brands has enabled it to gain market share in the higher-margin segments, positioning the company for long-term growth and margin expansion.”
Zimmer Biomet: Leader in Large-Joint Reconstruction
Zimmer Biomet is a top name in the medical devices world. It leads in large-joint reconstruction with over 90 years of innovation. This has made it a trusted partner for surgeons all over the globe.
The aging baby boomer population and new technology will drive demand for joint replacements. This will help Zimmer Biomet grow, even with possible price drops. The company works closely with surgeons, building strong loyalty and a global presence in over 100 countries.
Zimmer Biomet aims to grow by creating new products and improving how it works. This approach is seen as key to its success. Recently, it made history by performing the world’s first robotic-assisted shoulder replacement surgery. This shows its dedication to advancing medical technology.
| Metric | Value |
|---|---|
| First Quarter Net Sales | $1.889 billion (3.2% increase) |
| Net Earnings | $172.4 million (GAAP), $399.7 million (Adjusted) |
| Diluted Earnings Per Share | $0.84 (GAAP), $1.94 (Adjusted) |
| Revenue Change (Projected for 2024) | 4.5% – 5.5% Reported, 5.0% – 6.0% Constant Currency |
| Adjusted Diluted EPS (Projected for 2024) | $8.00 – $8.15 |
Zimmer Biomet leads in large-joint reconstruction thanks to its focus on innovation and strong surgeon relationships. Its financial health and exciting new products keep it at the top of the medical devices industry.
Roche Holding: Biologics Focus and Innovative Pipeline
Roche Holding is a top drug maker leading the way in healthcare with its focus on biologics and new ideas. It’s a leader in pharmaceuticals and diagnostics, offering solutions that improve patient care. This makes Roche a key player in personalized healthcare.
Roche is at the forefront of cell therapy research and development. It works with companies like Genentech and others to create new cell therapies. These therapies aim to treat diseases in areas like cancer, eye health, brain health, blood disorders, and immune system issues.
Roche invests a lot in research and development, leading to over 15 new drug programs. This strong pipeline, along with its top-notch diagnostics, makes Roche a leader in personalized healthcare. This focus helps the company grow and stay ahead.
Unique Position in Personalized Healthcare
Roche is a pioneer in personalized healthcare thanks to its focus on biologics and new ideas. It uses advanced tech and works with others to make treatments that meet patients’ specific needs. This approach improves treatment results and lowers healthcare costs.
At the China International Import Expo (CIIE), Roche showed off its latest innovations. This event helped the company grow its presence in the big Chinese market.
“Roche is in a unique position to guide healthcare into a safer, more personalized, and more cost-effective endeavor,” according to Morningstar.
Roche is set to benefit from the increasing need for personalized healthcare. This will help the company stay a top player in the drug industry. It will also bring long-term value to investors.
British American Tobacco: Aggressive Push into Next-Generation Products
British American Tobacco (BAT) leads the tobacco industry in moving towards new products. Even though traditional cigarettes will keep making most of the profits, BAT is adding new items to its lineup. This move helps the company stay ahead.
With a market capitalization of $62.9 billion and a forward dividend yield of 10.47%, BAT is cheaper by 42% than its true value. The company is focusing on vaping, heated tobacco, and oral products. This shift is a big part of its strategy.
| Metric | BAT | Imperial Brands | Roche Holding |
|---|---|---|---|
| Market Capitalization | $62.9 billion | $18.4 billion | $195.5 billion |
| Forward Dividend Yield | 10.47% | 8.53% | 4.61% |
| Discount to Fair Value | 42% | 40% | 45% |
Morningstar predicts tobacco sales will drop by about 4% each year until 2028. But, higher prices and new products will help make up for this loss. BAT’s Vuse brand leads in vaping, with a 47% market share.
“BAT’s next-generation division became profitable two years ahead of schedule, moving from a £1.1 billion loss in 2020 to profitability.”
As the tobacco world changes, BAT is moving into alternative product categories aggressively. This move helps the company stay competitive. For investors looking at the changing tobacco market, BAT could be an interesting choice.
Reckitt Benckiser Group: Premium Brands in Attractive Categories
Reckitt Benckiser leads in household products and consumer health worldwide. It owns Lysol, Finish, Durex, and Mucinex. These brands are in growing markets, but the company faces challenges.
Opportunities for Portfolio Interventions and Legal Resolution
Morningstar sees chances for Reckitt to improve its brands and solve legal issues. Its brands like Mucinex and Durex have grown by 7% yearly from 2018 to 2023. They also have a strong profit margin of 61% in 2023.
Reckitt also has brands like Air Wick and Calgon, which made £1.9 billion in 2023. The company bought Mead Johnson for $17 billion in 2017 but faced issues. It sold its infant nutrition business in China for $2.2 billion in 2021.
Despite challenges, Reckitt’s premium brands are strong in key markets. The company plans to buy back £1 billion in shares and increase its dividend by 5.0%. This shows its focus on making money for shareholders.
Reckitt Benckiser is facing tough times but still has a chance to grow and create value. With its popular brands, it can benefit from strong market trends. But, it needs to work on its brand mix and legal issues.
Anheuser-Busch InBev: Global Scale and Cost Advantages
Anheuser-Busch InBev is a leading global beverage company. It has grown big through smart buys like Grupo Modelo and SABMiller. This makes it a big name in the industry.
Morningstar sees Anheuser-Busch InBev as a top choice for investors. It’s known for being very efficient and making more free cash than its rivals. This shows how well it runs its business.
The company buys brands that can grow and works on getting its products out there. It also cuts costs to stay ahead. This strategy helps it keep leading in the global beverage market, bringing in steady money and profits.
| Key Metrics | FY 2023 | FY 2022 |
|---|---|---|
| Revenue Growth | 7.8% | 6.2% |
| Normalized EBITDA Growth | 7.0% | 6.2% |
| Underlying EPS | $3.05 | $2.82 |
| Net Debt to Normalized EBITDA Ratio | 3.38x | 3.51x |
Anheuser-Busch InBev is set to keep doing well in the changing beverage market. Its size, cost savings, and efficient ways make it a strong choice for investors looking at the stable consumer staples sector.
Bristol-Myers Squibb: Undervalued Pharmaceutical Giant
Bristol-Myers Squibb is a top name in pharmaceuticals seen as a hidden gem. Morningstar, a well-known investment research firm, sees the company’s drug collection and leading diagnostics as big pluses. These strengths support its strong economic moat rating.
Even with its strong performance, Bristol-Myers Squibb’s stock is still priced too low. In the second quarter of 2023, the company saw a 9% jump in revenue to $12.2 billion, beating what analysts expected. Its earnings per share went up from $1.75 to $2.07, more than the predicted $1.63. Plus, the company boosted its 2024 earnings forecast, showing a bright future.
So, why is Bristol-Myers Squibb a good choice for investors? Its stock is 40% lower than its November 2022 peak, hinting at possible undervaluation. Also, it offers a forward-looking dividend yield of 5.3%. This dividend has grown every year for the last 15 years.
This company shines with its innovative drugs, focus on personalized healthcare, and history of growth. Bristol-Myers Squibb is an undervalued giant in pharmaceuticals that smart investors should keep an eye on. As the industry changes, this pharma leader is set to seize new chances.
“Bristol-Myers Squibb is an undervalued pharmaceutical giant with a promising future.”
top companies to invest in right now
The current bull market is booming, and a few stocks are leading the way. These top stocks, known as the “Magnificent 7,” have been driving the market up. But don’t think they’ll stop performing well soon. In fact, three of the top five stocks to buy now are part of this group.
Magnificent 7 Stocks Leading the Bull Market
The Magnificent 7 include BILL Holdings, Coinbase Global, CrowdStrike Holdings, Docebo, MongoDB, Lemonade, and Chewy. These stocks have done very well lately. For instance, BILL Holdings grew its revenue by 65% in 2023, hitting over $1 billion. CrowdStrike Holdings saw its yearly revenue grow by 34% to $3.4 billion. Snowflake also saw a 38% jump in its product revenue to almost $2.7 billion in 2024.
Real Estate, Aerospace, and Consumer Staples Picks
While the Magnificent 7 lead the market, other sectors are also strong. S&P 500 stocks in real estate, aerospace, and consumer staples are great for investment. Names like Toast, PubMatic, Zscaler, and Chewy have shown strong financials and growth recently.
For investors, it’s smart to look at these top companies to invest in right now. They’ve shown they can handle economic ups and downs and keep giving good returns to shareholders.
Investing Fundamentals: Goals, Time Horizon, and Risk Tolerance
Creating a winning investment plan starts with knowing the basics. You need to think about your financial goals, time horizon, and risk tolerance. These elements help decide the best investment strategy for you.
Your financial goals could be saving for retirement, a house down payment, or college funds. Each goal needs its own investment plan. For example, retirement savings can handle market ups and downs better because they’re for the long term. Short-term goals like buying a house need safer investments.
The time horizon of your investments is very important. If you’re looking at less than 5 years, you might want to choose safer options like bonds or cash. But if you’re thinking 10 years or more ahead, you might consider riskier investments like stocks. Choosing the right time frame for your investments is crucial for a successful portfolio.
Your risk tolerance is also key. It’s about how much market changes worry you. If you’re bold, you might put more into stocks. If you’re cautious, bonds and cash might be better for you. Knowing your risk level helps make a portfolio you can handle through good and bad times.
By setting clear investing fundamentals, you can make a strategy that fits your financial goals and risk level. This is the first step to a rewarding, long-term investment journey.
Evaluating Stocks: Fundamentals, Industry Trends, and Competitive Advantages
When looking at stocks, it’s key to check a company’s basics, see where the industry is going, and find out what makes it stand out. This deep dive can lead investors to stocks that are worth more than they seem or ones that others have missed.
At the heart of stock checking is fundamental analysis. By looking closely at a company’s finances, investors can see how it’s doing on key points like revenue growth, earnings per share (EPS), and return on equity (ROE). Looking at these basics tells you about its money health, profits, and growth chances.
What’s happening in the industry is also very important. Knowing about big changes, like new trends or tech shifts, helps guess how a company will do in the future. Also, seeing what makes a company special, like its brand or new products, shows if it can stay ahead.
Looking at a company’s basics, industry trends, and what makes it stand out helps investors make smart choices. This mix of analysis can help find stocks that could grow a lot over time.
| Key Ratio | Description | Optimal Range |
|---|---|---|
| Price-to-Earnings (P/E) Ratio | Measures a company’s valuation relative to its earnings | Average P/E ratio falls between 20-25 |
| Price-to-Book (P/B) Ratio | Compares a company’s market value to its book value | P/B ratios below 1.0 are considered optimal, with investors accepting up to 3.0 |
| Price-to-Earnings Growth (PEG) Ratio | Measures a stock’s valuation in relation to its growth rate | A good PEG ratio is typically below 1.0, indicating fair value, while a PEG above 1.0 suggests paying more for expected growth |
By using these key points in their stock checks, investors can find great investment chances. Remember, doing your homework and analyzing well is key to making smart stock picks.
Conclusion
Investing in the stock market can help you grow your wealth over time. But, it’s important to research and pick companies with strong basics, unique benefits, and growth chances. These companies might not always be in the spotlight. Yet, they have low stock prices, skilled leaders, and good trends in their industry.
By picking these companies and spreading out your investments, you can set yourself up for long-term success. Important things to think about when looking at companies to invest in include their financial health, growth chances, competitive edge, and market trends. Remember, investing in the stock market needs patience, research, and a balance of risk and reward.
If you want to invest in top Indian companies like Reliance Industries, Tata Consultancy Services, and HDFC Bank, or if you’re interested in the strong S&P 500, be strategic. With a well-informed approach, you can make the most of the stock market. This way, you can work towards reaching your financial goals.