A fair number of high-quality stocks have failed to thrive in recent months. This week, Morningstar screened stocks with the firm’s Economic Moat Ratings of narrow or wide that have lost more than 20% in the three months ended Sept. 17.
A company with a wide moat rating is one whose competitive advantages Morningstar analysts expect to last 20 years or more, while a company with a narrow rating can be expected to fend off rivals for 10 years.
In a blog post, Jakir Hossain, an assistant data journalist at Morningstar, wrote that several China-based stocks appear on the list, noting that government regulatory crackdowns have wiped out billions of market value from companies in the Chinese tech sector to those in the private education sector.
“While most investors have been left reeling from China’s regulatory changes, we think the crackdown has created opportunity for long-term investors willing to endure some volatility,” Hossain wrote.
The most recent wave of Chinese regulations has targeted the gambling industry in Macao, according to Hossain. He cited senior Morningstar equity analyst Jennifer Song who lays out three areas of concern for investors betting on the Macao gambling industry.
- Casino operators will be subject to scrutiny by a proposed revised gambling law, leading to increased local ownership; this portends more direct government supervision on gaming companies’ operations.
- Beijing’s crackdown on cross-border currency outflows and money laundering will likely imperil junkets and the VIP segment.
- Scant transparency exists on the renewal of gaming licenses, with little guidance thus far on the number of licenses and the concession period and restriction on capital allocation.
Hossain noted that Morningstar has lowered its ratings on the gambling stocks because of these concerns, but said they still present opportunities for long-term investors.
See the gallery for the 18 stocks that look undervalued to Morningstar analysts.