Quality is one of the most durable investment factors, but that durability doesn’t come cheap, which is to say that finding quality stocks at a discount can be a trying task.
Among exchange traded funds, the VanEck Vectors Morningstar Wide Moat ETF (MOAT) is one of the most credible avenues for investors seeking exposure to a basket of quality stocks trading at compelling valuations.
After all, MOAT follows the Morningstar Wide Moat Focus Index, which is designed to identify wide moat companies — certainly a quality trait — trading at attractive multiples. It’s a methodology that long-term investors might want to consider.
“Stocks that earn Morningstar’s wide moat designation–companies with strong competitive advantages that should help them outperform their peers over the next 20-plus years–have fared worse this year than the overall market,” says Morningstar analyst Lauren Solberg.
The $8.3 billion MOAT holds 46 stocks, and amid a sluggish start to 2022 by the broader market, some members of the exchange traded fund’s roster are looking interesting on valuation. In some cases, these names are not usually inexpensive. Examples include biotech firm Biogen (NASDAQ:BIIB) and Dow Jones Industrial Average member Salesforce (NYSE:CRM).
“As a group, wide moat companies have lost 14.1% for the year, nearly 1% more than the Morningstar U.S. Market index losses of 13.3%. The underperforming wide-moat stocks group includes Biogen (BIIB), down 19% so far this year, and cloud-based CMS provider Salesforce (CRM), where shares are down 24%. Both are now trading in undervalued territory and are considered five-star stocks by Morningstar analysts,” adds Solberg.
Biogen and cloud computing giant Salesforce combine for almost 4% of MOAT’s roster. None of the fund’s holdings exceed a weight of 3.48%, indicating that single-stock risk is relatively low.
History indicates that it’s not often that wide moat stocks lag in rising environments and when inflation is high — two scenarios investors are contending with today. That could be a sign that the discounts currently sported by some MOAT holdings won’t last long.
Other MOAT components that are undervalued today include Equifax (NYSE:EFX), Polaris (NYSE:PII), Veeva Systems (NASDAQ:VEEV), and Facebook parent Meta Platforms (NASDAQ:FB).
“Meta’s large and growing user base and the rich data that it generates help advertisers post more effective ads, in terms of brand awareness, resulting in high return on investment. With higher ROI, more advertisers jump on board, allowing Meta to further monetize the network,” says Morningstar analyst Ali Mogharabi.
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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.
