Five 5-Star Stocks in the Morningstar Minority Empowerment Index

As Black History Month opens, how can investors find companies that reflect a world where every employee and shareholder is created equal?

Launched in 2018, the Morningstar Minority Empowerment Index highlights companies that demonstrate a strong commitment to racial and ethnic equality within their corporate culture. The index uses criteria derived from the advocacy group NAACP to assess companies based on board diversity, discrimination policy, and diversity programs.

To better understand how companies are selected for this index, here’s an overview of its construction.

Constituents of the Morningstar US Large-Mid Cap Index are eligible for inclusion, though any constituent with High Controversy and Severe Carbon Risk are automatically excluded. Eligible companies are then assigned a minority empowerment score by Morningstar Sustainalytics. This score is based on how well a company approaches diversity, equity and inclusion DEI initiatives, communicated through 18 standards. These standards include:

• Board diversity: This indicator assesses the level of gender and/or national diversity on the board.
• Discrimination policy: This indicator assesses the quality of a company’s policies to eliminate discrimination and ensure equal opportunity.
• Community development programs: This indicator gauges the strength of a company’s local community development programs. It does not focus on cash donations, but formal programs that promote long-term economic development among communities directly affected by the company’s operations.
• Gender pay disclosure: This indicator assesses the strength of a company’s disclosure related to the gender pay gap.

See the full list of criteria here. The constituents are then ranked within the index, 1-200.

Below, we’ll cover five stocks trading at the largest discounts among the 200 on the index, gaining insight from Morningstar Analysts.

Five Stocks with Large Discounts on the Morningstar Minority Empowerment Index

Albemarle

Morningstar Rating: 5 Stars

Minority Empowerment Score Rank: 6

Price/Fair Value: 0.43

Industry: Specialty Chemicals

Albemarle is the most undervalued stock on this list, trading at a 57% discount. The chemical manufacturer is one of the world’s largest producers of lithium, which is used in the electric vehicle industry. “Albemarle has a cost advantage in lithium carbonate production due to its lucrative brine assets in the Salar de Atacama in Chile, which produce lithium at the lowest cost globally, excluding royalties,” Morningstar Strategist Seth Goldstein says. It also is the highest ranked in terms of minority empowerment score, ranked 6 out of 200 constituents.

Biogen

Morningstar Rating: 5 Stars

Minority Empowerment Score Rank: 46

Price/Fair Value: 0.46

Industry: Drug Manufacturers

Biogen manufacturers specialty drugs, focusing on multiple sclerosis, Alzheimer’s disease, and depression. Additionally, “2020 collaborations with Denali in neurodegenerative diseases and with Sage in depression and movement disorders also expand the firm’s pipeline and bring more potential launches to the portfolio to diversify away from exposure to any single pipeline failure” says Jay Lee, Morningstar senior equity analyst. The company is currently trading at a 54% discount from its fair value of $303. Sales declines put pressure on the company to adapt to new ventures, but this does not detract from the 5-star rating.

Baxter

Morningstar Rating: 5 Stars

Minority Empowerment Score Rank: 187

Price/Fair Value: 0.50

Industry: Medical Instruments and Supplies

Narrow-moat Baxter is a leader in medical instruments and supplies, trading 50% below its fair value estimate. The company has a large breadth of products, including a key few that Morningstar Senior Equity Analyst Julie Utterback says are intangible. “In our opinion, the strongest moat in the legacy Baxter operations surrounds one of its smaller offerings—infusion pumps. Infusion pumps help hospital staff, primarily nurses, automatically administer medical therapies and often lead to recurring consumable sales of administrative sets for producers, like Baxter,” she notes.

Ford Motor

Morningstar Rating: 5 Stars

Minority Empowerment Score Rank: 13

Price/Fair Value: 0.54

Industry: Auto Manufacturers

Ford is one of the largest auto manufacturers in the nation, and its stock is currently trading at a 46% discount. This also has the second-highest ranking minority empowerment score on our list. Ford stays a fierce competitor, investing in light-truck models, which made up 80% of the US light-vehicle sales. David Whiston, Morningstar strategist, says that “The mostly no-moat nature of the auto industry makes these tasks difficult, and we see headwinds from areas such as restructuring, commodities, and exchange while investments in mobility and electrification take years to bear fruit. Ford targets 50% global all electric volume by 2030.” While new ventures may be profitable, the vehicle manufacturing industry remains competitive.

CVS Health Corp

Morningstar Rating: 5 Stars

Minority Empowerment Score Rank: 56

Price/Fair Value: 0.57

Industry: Healthcare Plans

CVS is currently trading at a 43% discount to its fair value estimate. The 5-star company has positioned itself as a healthcare leader, whose “top-tier retail pharmacy, health insurer, and [pharmacy benefit manager] franchises create the potential to improve health outcomes and even bend the healthcare cost curve for its clients, especially if it can align incentives by owning healthcare service providers, as well,” says Utterback. While changes in government and healthcare legislation create potential profit headwind, Morningstar’s fair value estimates and narrow moat remain intact.