With the economy in difficult straits, but the stock market looking positively perky, Morningstar encourages investors to favor companies that have well-established and stable competitive advantages, Susan Dziubinski, director of content for Morningstar.com, wrote in a blog post this week.
And investors should buy these stocks only when they are selling at a significant discount to their fair values, Dziubinski said.
But many companies lack sustainable competitive advantages. Morningstar has isolated nine stocks that are trading at 1- and 2-star levels without Morningstar Economic Moat Ratings and with negative moat trends.
Dziubinski said there were two reasons for screening on these data points. For one, companies lacking moats are less likely over time to be able to stay ahead of competitors that have moats.
In addition, when Morningstar assigns a company a negative moat trend, it deems the competitive advantages it does have to be eroding, making it more challenging for the company to profitably defend its current market position over time.
See the gallery for the nine richly trading no-moat stocks with negative moat trends that Morningstar says investors should avoid. Year-to-date returns are current as of market close on Sept. 17.
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