3 Core Stocks to Buy at the Right Price
Put these high-quality stocks on your watchlist.
Susan Dziubinski: Hi, I’m Susan Dziubinski, co-host of The Morning Filter podcast. On a recent episode, Morningstar’s Chief US Market Strategist Dave Sekera talked about great stocks to buy for the core of your portfolio, but only when you can get them at an undervalued price. The top core stocks Dave suggested investors put on a watchlist were Alphabet GOOGL, Lowe’s LOW, Procter & Gamble PG, ExxonMobil XOM, and JPMorgan Chase JPM.
Today, we’re covering three more stocks that make great core holdings. Add these names to your watchlist and consider buying them when they’re trading below Morningstar’s fair value estimate.
3 Core Stocks to Buy at the Right Price
Our first core stock to buy when the price is right is Amazon. Amazon is a leader in e-commerce and public cloud services, and Morningstar assigns the company a wide economic moat rating. What makes Amazon unique among the companies that Morningstar covers is that its wide moat stems from four of our five moat sources: network effects, cost advantages, intangible assets, and switching costs. Most companies have just one or two sources of moat. We think management has done an exceptional job of allocating capital over time, in particular, successfully investing in areas that investors were initially skeptical of. Amazon is a company that we expect will generate good revenue and free cash flow for years to come. And we think the stock is worth $280.
Read Morningstar’s full report on Amazon.com.
Our next core stock to keep on your watchlist is Coca-Cola. Morningstar thinks Coke has built a wide economic moat around its global beverage operations based on intangible assets and a significant cost advantage. Strong pricing power and durable cost advantages should allow Coke to remain in an enviable position, where it can extract attractive economic benefits from its own operations and bottler networks. The company has a superb balance sheet and more than enough liquidity to weather macroeconomic uncertainty and invest for long-term growth. And management has done an exceptional job of allocating capital to strengthen its competitive position through both innovation and marketing spending, along with selective acquisitions. We think Coke stock is worth $74.
Read Morningstar’s full report on Coca-Cola.
The final core stock to buy when the price is right is Deere. As one of the world’s leading providers of machinery serving agricultural, construction, and other industrial end markets, Deere has dug a wide economic moat based on intangible assets and switching costs. For the past decade, the company has been investing more in connecting its machines to GPS and other technology architecture to boost their performance in the field. While Deere is a cyclical business, management maintains a fortresslike balance sheet and has made prudent decisions about capital allocation. That’s given the company ample financial flexibility to invest in the business throughout the cycle. We assign Deere stock a $600 fair value estimate.
Read Morningstar’s full report on Deere & Co.
For more stock ideas, be sure to tune in to The Morning Filter wherever you get your podcasts and visit Morningstar.com, too.
Morningstar senior analysts Kristoffer Inton and Dan Romanoff and analyst George Maglares provided the research behind this segment.
Watch 3 Stocks to Invest In to Rebalance Your Portfolio for more from Susan Dziubinski.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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