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What is the best company to invest in right now?

The 10 Best Stocks as of December 2022 Walt Disney DIS. Comcast CMCSA. Taiwan Semiconductor Manufacturing TSM. Guidewire Software GWRE. Equifax EFX. TransUnion TRU. Anheuser-Busch InBev BUD. Yum China YUMC. More items... •

morningstar.com - The 10 Best Companies to Invest in Now | Morningstar
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Investors have endured a lot of market uncertainty during 2022 so far. The market faces several risks today, including inflation, rising interest rates, and a possible recession. During uncertain times, investors may want to own companies that offer some sense of certainty in terms of cash flows and company fundamentals. That’s where Morningstar’s Best Companies to Own list comes in. The companies that make up this list—129 in total—have significant competitive advantages, and we think those advantages are stable or growing. We believe the best companies have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions. But the best firms aren’t always the best stocks to buy at a given point in time. How much an investor pays to own a company—best or otherwise—is important, too. So, here we’re focusing on the 10 best companies with the most undervalued stock prices today.

The 10 Best Stocks as of December 2022

The 10 most undervalued stocks from our Best Companies to Own list as of Nov. 30, 2022, were: Walt Disney DIS Comcast CMCSA Taiwan Semiconductor Manufacturing TSM Guidewire Software GWRE Equifax EFX TransUnion TRU Anheuser-Busch InBev BUD Yum China YUMC Tyler Technologies TYL Masco MAS Here’s a little bit about why we like each of these companies at these prices, along with some key Morningstar metrics. All data is as of Nov. 30.

Walt Disney

Price/Fair Value: 0.58

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Standard

Industry: Entertainment

Walt Disney made headlines in November, reinstalling Bob Iger as CEO, after posting mixed earnings earlier in the month. Walt Disney continues to transform its business as the media industry evolves. Direct-to-consumer efforts including Disney+, Hulu, and ESPN+ are taking over as drivers of long-term growth as the firm transitions to a streaming future. Morningstar senior analyst Neil Macker adds that the company’s collection of Disney-branded businesses demonstrates pricing power that fortify the company’s economic moat. Disney stock is 42% undervalued relative to our $170 fair value estimate.

Comcast

Price/Fair Value: 0.61

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Standard

Industry: Telecom Services

Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. However, the falloff in Comcast stock suggests years of steep customer losses, which we don’t think is likely, says Morningstar director Mike Hodel. While we don’t expect a return to the growth rates of the recent past, we think investors should focus more on the company’s cash flow and capital allocation instead. Comcast stock trades 39% below our fair value estimate of $60 today.

Taiwan Semiconductor Manufacturing

Price/Fair Value: 0.62

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Exemplary

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Industry: Semiconductors

The stock of the world’s largest dedicated contract chip manufacturer has struggled this year because of macroeconomic uncertainty, sluggish demand, and new U.S. restrictions on doing business with Chinese customers. The stock has bounced back of late, after Berkshire Hathaway announced it had initiated a substantial stake in the company. We expect short-term uncertainties over foundry demand to increase, but we think Taiwan Semiconductor is undervalued as an outside beneficiary of cloud services over the long term, says Morningstar analyst Phelix Lee. Taiwan Semiconductor’s stock trades 38% below our fair value estimate of $133.

More on This Topic Morningstar's Guide to Stock Investing

Guidewire Software

Price/Fair Value: 0.62

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Positive

Morningstar Capital Allocation Rating: Standard

Industry: Software—Application

The leader in core software solutions for the property-casualty insurance market, Guidewire has faced some challenges as it transitions to the cloud, notes Morningstar senior analyst Dan Romanoff. That said, we see a significant opportunity for Guidewire to migrate more of its customers to the cloud in coming years, and we see a long runway for additional growth. Guidewire stock trades 38% below our fair value estimate of $95.

Equifax

Price/Fair Value: 0.63

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Exemplary

Industry: Consulting Services

One of the leading credit bureaus in the United States, Equifax faces strong headwinds today as mortgage market weakness—and a subsequent decline in mortgage credit inquiries—takes a toll. We nevertheless think the market is being overly harsh: Equifax stock trades 37% below our $315 fair value estimate. In fact, we think Equifax’s Workforce Solutions segment is differentiated and continues to be a large profit driver for the firm, says Morningstar analyst Rajiv Bhatia, and we think the segment’s fundamentals are strong. It is now Equifax’s largest segment.

TransUnion

Price/Fair Value: 0.64

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Exemplary

Industry: Consulting Services

Another of the leading consumer credit bureaus, TransUnion faces headwinds from lower mortgage activity and also from foreign currency exchange; about one fourth of TransUnion’s revenue comes from international markets (though the international business is, in fact, performing well). Despite these headwinds, TransUnion’s competitive position remains intact, says Morningstar’s Bhatia. TransUnion stock trades 36% below our $98 fair value estimate.

Anheuser-Busch InBev

Price/Fair Value: 0.65

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Exemplary

Industry: Beverages—Brewers

Brewer Anheuser-Busch InBev has a vast global scale and regional density. The company has a history of buying brands with promising growth platforms and then expanding distribution while ruthlessly squeezing costs from the businesses, which contributes to its Morningstar Capital Allocation Rating of Exemplary. “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” says Morningstar director Philip Gorham. We think the market has underappreciated AB InBev stock for a long while: The stock trades 35% below our fair value estimate of $90.

Yum China

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Price/Fair Value: 0.66

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Standard

Industry: Restaurants

Although the resurgence in coronavirus cases has put pressure on the Chinese restaurant sector, we think Yum China, the largest restaurant chain in China, is being unduly punished: Yum China stock is 34% undervalued relative to our fair value estimate of $84. Morningstar senior analyst Ivan Su argues that there’s reason to be confident about restaurants such as Yum China (whose brands include KFC, Pizza Hut, and Taco Bell, among others) that may be facing short-term headwinds but have the scale to be aggressive on pricing; that provide customers greater access via robust digital ordering, delivery, and drive-through options; and that boast healthy balance sheets.

Tyler Technologies

Price/Fair Value: 0.69

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Standard

Industry: Software—Application

Like other software stocks, Tyler Technologies stock has gotten knocked for a loop this year. The stock is undervalued, trading 31% below our $500 fair value estimate. The company, which is the leader in the niche government operational software market, posted solid third-quarter results. We think there’s a decadelong runway to growth at Tyler, as the push for local governments to modernize their legacy enterprise resource planning systems intensifies, argues Morningstar senior analyst Dan Romanoff.

Masco

Price/Fair Value: 0.69

Morningstar Uncertainty Rating: Medium

Morningstar Moat Trend Rating: Stable

Morningstar Capital Allocation Rating: Standard

Industry: Building Products & Equipment

Masco stock is undervalued by 31%, according to our metrics. Masco, which manufactures a variety of home improvement and building products, has revamped its management team and business model during the past several years. Though third-quarter results disappointed, we like that management has eliminated the company’s cyclical and least-profitable business, cut costs, and firmed up the balance sheet, says Morningstar sector director Brian Bernard. We assign the stock a $74 fair value estimate.

The Best Companies to Own

You can review all of the companies on our Best Companies to Own list and dig into our methodology, which includes definitions for the key Morningstar metrics included in this article. Those with specific interests can drill down with our Best International Companies to Own, Best Sustainable Companies to Own, and Best Innovative Companies to Own lists, too. Remove the guesswork and make informed decisions faster. Morningstar Investor’s stock ratings, analysis, and insights are all backed by our transparent, meticulous methodology. Learn more and start a seven-day free trial today.

morningstar.com - The 10 Best Companies to Invest in Now | Morningstar
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