The 2022 equity market pullback isn’t playing favorites as stocks across the board are faltering, and that includes plenty of familiar large- and mega-cap names.
Indeed, it’s difficult to get excited about stocks at the moment. Some experts forecasting that more downside will make the task even harder, but for patient investors, there are positives to consider. Those include heavily discounted prices on some venerable stocks.
That group includes members of the VanEck Vectors Morningstar Wide Moat ETF (MOAT). MOAT tracks the Morningstar Wide Moat Focus Index and has a straightforward objective: identify attractively valued stocks with durable competitive advantages.
It’s not always easy to find wide moat stocks trading at compelling valuations, but the 2022 broader market reset is easing that burden. As of May 11, eight of the 10 largest domestic stocks by market value, including some MOAT components, were in the red.
“The good news for investors is that means some of these industry leaders are the most undervalued they’ve been in years. Semiconductor giant Nvidia (NVDA) is trading at its largest discount to Morningstar’s fair value estimate in our history of following the stock,” notes Morningstar analyst Jakir Hossain.
Warren Buffett’s Berkshire Hathaway (NYSE:BRK-B) and Johnson & Johnson (NYSE:JNJ) are the two of the 10 that are in the green this year, and the former is a MOAT component. However, Berkshire Hathaway isn’t considered undervalued at current levels.
Among the MOAT holdings that are undervalued are a variety of growth stocks, including Google parent Alphabet (NASDAQ:GOOG) and Facebook parent Meta Platforms (NASDAQ:FB).
“While Meta continues to focus on metaverse opportunities in the long run, it is also increasing its efforts and investments in its very profitable advertising business to overcome obstacles created by Apple and position itself to benefit from the growing short-form video trend,” says Morningstar senior equity analyst Ali Mogharabi.
Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) are other examples of wide moat names that are now undervalued. Combine that duo with Alphabet and Meta, and that quartet combines for about 8.5% of MOAT’s portfolio.
Interestingly, MOAT currently avoids Apple (NASDAQ:AAPL), Johnson & Johnson, and UnitedHealth (NYSE:UNH) — each of which are considered overvalued by Morningstar. However, it’s possible that those names could eventually make their way into MOAT.
“Nonetheless, these stocks have still fallen from their recent highs and moved closer to Morningstar analysts’ fair value estimates,” concludes Hossain.
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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.
