10 Undervalued Wide-Moat Stocks

The Morningstar Wide Moat Focus Indextracks companies that earn Morningstar Economic Moat Ratings of wide and whose stocks are trading at the lowest current market prices relative to our fair value estimates.

Wide-moat companies carry sound balance sheets and significant competitive advantages—two desirable qualities in the face of today’s economic uncertainty.

How has this collection of undervalued wide-moat stocks performed over the long term? Pretty well: The Morningstar Wide Moat Focus Index has outperformed the broad-based Morningstar US Market Index over the trailing five- and 10-year periods.

With those performance numbers on the index’s side, its constituents are a fertile hunting ground for long-term investors looking for high-quality stocks to buy that are trading at cheap prices.

10 Most Undervalued Wide-Moat Stocks to Buy

These were the 10 most undervalued wide-moat stocks in the Morningstar Wide Moat Focus Index as of June 21, 2024.

1. Estee Lauder EL
2. Etsy ETSY
3. Zimmer Biomet ZBH
4. MarketAxess Holdings MKTX
5. Pfizer PFE
6. Bristol-Myers Squibb BMY
7. Veeva Systems VEEV
8. Comcast CMCSA
9. Kenvue KVUE
10. Gilead Sciences GILD

The most undervalued wide-moat stock on the list, Estee Lauder, was trading 46% below our fair value estimate as of June 21, while the last company on the list, Gilead Sciences, was trading 27% below our fair estimate. We think all 10 of these names are high-quality stock ideas for long-term investors to consider.

To keep the index focused on the least-expensive high-quality stocks, Morningstar reconstitutes the index regularly. The index consists of two subportfolios containing 40 stocks each, many of which are overlapping positions. The subportfolios are reconstituted semiannually in alternating quarters on a “staggered” schedule.

Morningstar reevaluates the index’s holdings and adds and removes stocks based on a preset methodology. Because stocks are equally weighted within each subportfolio, the reconstitution process also involves rightsizing positions.

After the most recent reconstitution, half the portfolio added 12 stocks and eliminated 12 stocks.

12 Undervalued Stocks Added to the Morningstar Wide Moat Focus Index

These undervalued stocks were added to the reconstituted subportfolio of the Morningstar Wide Moat Focus Index on June 21.

Interestingly, four of the undervalued wide-moat stocks added to the index hail from the technology sector―a bit of a surprise, given that tech stocks, as a group, look overvalued today.

12 Stocks Removed From the Morningstar Wide Moat Focus Index

These stocks were removed from the reconstituted subportfolio of the Morningstar Wide Moat Focus Index on June 21.

Stocks can be removed from the index for a few different reasons: if we downgrade their economic moat ratings, if their market capitalizations fall beneath a certain level, or if their price/fair value ratios rise significantly. Most of the stocks removed from the subportfolio during the latest reconstitution were pushed out by stocks that were trading at more attractive price/fair value ratios at the time of reconstitution. That being said, the stocks that were removed shouldn’t always be considered stocks to sell, especially when the removed stocks are still trading in what we’d consider a buying range. They’re just not as undervalued as the stocks added to the index at the time of the reconstitution.

What Are Wide-Moat Stocks?

Morningstar thinks that companies with wide economic moats have significant advantages that allow them to successfully fend off competitors for decades. Companies can carve out their economic moats in a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few.

Over time, we’ve found that the strategy of investing in wide-moat stocks trading at a discount to their fair values has been an effective approach to stock investing.