The S&P 500 just suffered its worst first half performance in 50 years, and that is enough to unnerve investors. High inflation, rising interest rates, and recession speculation only make matters worse.
Indeed, these are vexing times for market participants, but there are some bright spots. Those include some discount valuations on high-quality stocks, including some members of the VanEck Vectors Morningstar Wide Moat ETF (MOAT).
While the first six months of 2022 were forgettable for equity investors, it should not be forgotten that, at the very least, MOAT performed significantly less poorly than the broader market. Proving the advantages of wide moat investing, the VanEck exchange traded fund beat the S&P 500 by about 430 basis points through the first six months of 2022.
Plus, the Morningstar Wide Moat Focus Index — MOAT’s underlying index — is home to some undervalued stocks. In fact, at least 10 MOAT holdings, or 20% of the ETF’s roster, are considered attractively valued following rough first half showings.
“The most undervalued stock on the list, Meta Platforms, is trading 59% below our fair value estimate as of this writing, while the last on the list, Amazon.com, is trading 41% below our fair estimate. We think all 10 of these names are excellent high-quality stock ideas for long-term investors,” noted Morningstar’s Susan Dziubinski.
Facebook parent Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN) combine for 4.44% of MOAT’s portfolio. The objective of MOAT’s index is to identify wide moat stocks trading at attractive valuations. Amazon and Meta certainly check those boxes.
The index’s methodology also keeps things fresh, meaning that MOAT’s rebalances are potentially meaningful for investors. In June, 14 stocks were added to and removed from the benchmark.
“Stocks can be removed from the index for a few reasons: if we downgrade their economic moats or if their price/fair value ratios rise significantly, for instance. Nearly all of the removals in the latest reconstitution were pushed out by stocks that were trading at more-attractive price/fair value ratios at the time of reconstitution,” added Dziubinski.
Keeping with the theme of some online retailers and e-commerce plays being undervalued, Etsy (NASDAQ:ETSY) is among the recent additions to the MOAT roster. That stock is joined by some names familiar to ETF investors, including BlackRock (NYSE:BLK), Charles Schwab (NYSE:SCHW), and State Street (NYSE:STT).
“Morningstar thinks that companies with wide economic moats have significant advantages that allow them to successfully fend off competitors for decades. Companies can carve out their economic moats a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few,” concluded Dziubinski.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
