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.