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15 New 5-Star Stocks Trading at Big Discounts: Morningstar

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Related: 11 Good Stocks That Are Cheap Now: Morningstar

Opportunities in the stock market are more abundant today than they have been at any since the pandemic selloff, Jakir Hossain, an associate markets data journalist at Morningstar, wrote in a recent blog post.

The number of companies whose stock valuations have fallen into the undervalued 5-star Morningstar Rating category has surged, hitting 113 as of May 18, about 13% of the 871 stocks covered by the firm’s analysts. That’s slightly more than half the number of U.S. 5-star stocks in the market at the end of March 2020.

Hossain noted that U.S. stocks now trade at an average discount of 15% relative to their Morningstar fair value estimate, compared with an average 6% during the Morningstar US Market Index’s Jan. 3 peak.

Since then, 82 stocks have become 5-star-rated stocks and are trading at discounts of 25% or more. Long-term investors can lick their chops.

These new 5-star entrants differ from one another in an important way, however: the degree of their sustainable competitive advantage, which Morningstar analysts indicate by assigning moat ratings. Here’s what the ratings mean:

  • Wide moat: Analysts believe these high-quality companies hold lasting competitive advantages over their peers for at least the next two decades
  • Narrow moat: Analysts believe these companies also hold competitive advantages over their peers, but expect them to fend off competition for only about 10 years
  • No moat: Analysts view these 5-star companies as facing intense competition.

See the gallery for 15 new 5-star stocks, ranked by the discounts to their fair value.