Morningstar Equity Research has released its list of 10 “cheap, wide-moat” US stocks for 2025. According to the investment research firm, these are companies with “wide economic moats” and “significant advantages” that allow them to successfully fend off competitors for decades.
Susan Dziubinski, investment specialist at Morningstar Equity Research, says companies can carve out their economic moats in a variety of ways: by having high switching costs, through strong brand identities or by possessing economies of scale, among others.
Wide-moat companies carry “sound balance sheets and significant competitive advantages” — two desirable qualities in the face of today’s economic uncertainty, says Dziubinski in a Dec 31, 2024 note. “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.”
As at Dec 27, 2024, the 10 most undervalued wide-moat stocks in the Morningstar Wide Moat Focus Index are:
- Estee Lauder (EL)
- Huntington Ingalls Industries (HII)
- Pfizer (PFE)
- International Flavors & Fragrances (IFF)
- Nike (NKE)
- Campbell Company (CPB)
- Brown-Forman (BF.B)
- Zimmer Biomet (ZBH)
- NXP Semiconductors (NXPI)
- MarketAxess Holdings (MKTX)
The most undervalued wide-moat stock on the list is Estee Lauder, listed on the New York Stock Exchange (NYSE). Its shares were trading 54% below Morningstar’s fair value estimate as of Dec 27, 2024.
See also: HSBC upgrades LVMH, Hermès to ‘buy’, but sceptical of 2025 turnaround for Swatch, Kering
The last company on the list, Nasdaq-listed MarketAxess Holdings, was trading 25% below Morningstar’s fair value estimate.
“We think all 10 of these names are high-quality stock ideas for long-term investors to consider,” says Dziubinski.
See also: Hunting for value in luxury stocks
Among the 10 names, Estee Lauder’s shares fell the most over the past year, declining 47% to close at US$73.98 ($101.28) on Jan 2.
Shares of Nasdaq-listed processed food company Campbell's Co fell the least, declining 6% over the year to close at US$42.03 on Jan 2.
NYSE-listed International Flavors & Fragrances is the only company on the list whose share price increased over the year — its shares retreated from a 52-week high in mid-October 2024 to close at US$83.09 on Jan 2, up 2.05% over the year.
