3 of the Best Value Stocks to Own
These value stocks with wide economic moats are good long-term investments when you can buy them at a discount.
Susan Dziubinski: Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. Each week on the podcast, Morningstar Chief US Market Strategist Dave Sekera recommends a handful of stock picks. Dave’s recommendations are always names that are trading below what Morningstar thinks they’re worth.
But besides valuation, Dave’s stock picks tend to share a few other qualities. They’re frequently stocks of companies with wide or narrow economic moats. We think companies with economic moats have advantages that will allow them to fight off competitors for at least a decade. Dave also prefers companies that generate reliable cash flows and that pay a dividend.
In today’s bonus stock-pick segment, we’re focusing on three value stocks that have been picks of Dave’s in the past. We think these are some of the best value stocks to own for the long term, but investors should only buy these stocks when they’re trading at a discount to Morningstar’s fair value estimates.
3 of the Best Value Stocks to Own
We think ExxonMobil is among the best value stocks to own. Morningstar assigns Exxon a narrow Economic Moat Rating, and we continue to see the firm’s integrated model as a source of competitive advantage. In fact, we think Exxon is the highest-quality integrated firm, given its ability to capture economic rents along the oil and gas value chain. Exxon is departing from industry trends by increasing spending relative to years past to deliver $25 billion in earnings growth by 2030. We expect management to prioritize dividend growth, but investors should expect more cash to be returned through repurchases, particularly in high oil price environments.
Read Morningstar’s full report on ExxonMobil.
We think Johnson & Johnson is another good value stock to own for the long term. The healthcare giant holds a leadership role in diverse healthcare segments, including medical technologies and several pharmaceutical markets. We believe Johnson & Johnson has one of the widest moats in the healthcare sector, supported by intellectual property in the drug group and intellectual property and switching costs in the device segment. The company’s diverse revenue base, strong pipeline, and robust cash flow generation create a very wide economic moat. We forecast average annual growth of 6.4% on the top line and 7.5% on the bottom line through 2030, and we expect the company to continue to grow its dividend.
Read Morningstar’s full report on Johnson & Johnson.
Lastly, we think JPMorgan Chase is also among the best value stocks to own. The firm continues to distance itself from competitors, boasting the top market share in global investment banking fees, institutional trading revenue, domestic deposit market share, payment volume, domestic merchant acquiring, and credit card issuance. We assign the financial-services giant a wide Economic Moat Rating. JPMorgan has built a defensible and tangible asset around the reputation and capability of its famed investment banking arm, durable cost advantages across its consumer and commercial banks, and switching costs that span all three operating segments. JPMorgan prefers to return more capital through share repurchases rather than through dividends, given the inherent earnings volatility in its industry.
Read Morningstar’s full report on JPMorgan Chase.
For more stock ideas, be sure to tune in to The Morning Filter each week wherever you get your podcasts and visit Morningstar.com, too.
Morningstar directors Karen Andersen and Allen Good and analyst Austin Taggart provided the research behind this segment.
Watch 3 of the Best Growth Stocks to Own for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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