7 Surprising Stocks to Consider

These large companies lack economic moats and have negative moat trends, but Morningstar analysts think they’re attractive nonetheless

Susan Dziubinski 18 February, 2021 | 9:26AM
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Happy People

Some things just go together. Chocolate and peanut butter. Tom Petty and the Heartbreakers. Morningstar and moats.

As regular readers know, the Morningstar approach to stock investing rests heavily on the idea of economic moats. We believe companies that have carved out economic moats have unassailable competitive advantages that should allow them to thrive for a decade or more. And even better than a company with a moat? A company whose moat exhibits a positive moat trend - meaning that its competitive position isn’t just solid, it’s improving.

That being said, valuation is also important. No matter how moaty a company, it is unwise to buy a stock that is overpriced. But conversely, there are plenty of underpriced stocks that may not be competitive juggernauts, but are attractive investments at today’s prices.

This week, we’re screening for stocks that land in the large-cap area of the Morningstar Style Box, which lack economic moats and even carry negative moat trends but are underpriced according to our metrics, trading at 4- and 5-star levels. Seven stocks make the cut.

Surprising Stocks

Four automakers populate the list: Daimler (DAI), Honda (7267), Nissan (7201), and Volkswagen (VOW3). Why? Senior analysts Richard Hilgert and David Whiston explain in their 2020 Automotive Observer that few car makers can effectively carve out economic moats because of the ultra-competitive landscape.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Daimler AG96.40 USD0.97Rating
Honda Motor Co Ltd ADR30.00 USD0.27Rating
Huaneng Power International Inc ADR repr Class N19.64 USD2.56
Nissan Motor Co Ltd ADR10.22 USD-0.68Rating
PetroChina Co Ltd ADR51.28 USD2.27Rating
The Kraft Heinz Co36.22 USD-0.44Rating
Volkswagen AG ADR33.07 USD2.23Rating
Volkswagen AG ADR23.83 USD4.31Rating

About Author

Susan Dziubinski  Susan Dziubinski is senior product manager with Morningstar.com.