4 Wide-Moat Stocks to Buy for the Long-Term While They’re Undervalued Today

Summary

In a special edition of 'Morning Filter,' Susan Javinsky and Dave Skara discuss viewer-submitted questions on stock picks, market trends, and investment strategies. They address topics like lithium pricing, AI's impact on utilities, and the performance of specific stocks such as Nvidia, Intel, and Snowflake. Dave also shares insights on Morning Star's stock selection process and recommends several wide-moat stocks, including Nike and Johnson & Johnson, currently trading at discounts to their intrinsic value.

Takeaways

• 📈 The show 'Morning Filter' with Susan Javinsky and Dave Skara discusses stock picks and pans, and this episode features questions from viewers.
• 🔍 Dave Skara selects stocks to profile based on their market impact, differentiated views on valuation, and broader implications for investment theses or economic trends.
• 💡 When choosing weekly stock picks, the focus is on buy ideas, thematic investments, and stocks with Morningstar's high ratings, especially those with economic moats and lower uncertainty.
• 🚗 Lithium prices are expected to increase in the second half of the year, with long-term forecasts showing an undersupply until 2030, despite short-term fluctuations.
• ⚠️ Lithium Americas is a speculative stock with high uncertainty, but it's on track with its project and could be an interesting play for those willing to take on higher risk.
• 🌐 The growth of AI and data centers is driving up electricity demand, but investing in utilities to capitalize on this trend might be too late as the sector has already seen an increase in valuation.
• 📚 Dave recommends books on economic moats, distress investing, financial analysis, private debt, and market cycles for those interested in investing insights.
• 🏦 Toronto Dominion Bank's stock is low due to restructuring, acquisition-related expenses, and regulatory investigations, but it's rated 4 stars and could be attractive for long-term investors.
• 🤖 Palantir's stock is volatile and currently overvalued despite recent gains; Morningstar has a 2-star rating due to its high premium over fair value.
• 🛠️ Intel's stock has been downgraded by Morningstar due to falling behind in chip upgrades and increased competition from Qualcomm's Snapdragon Elite processors.
• 🌨️ Snowflake has had a disappointing year with management changes and lowered guidance, making it a currently risky investment despite its potential as a second derivative play on AI.

Q & A

What is the format change in the Morning Filter special edition?

The format change involves answering questions from the Morning Filter viewers instead of the usual discussion on Morning Star research and stock picks or pans for the week ahead.

How does Dave Sakara decide which stocks to profile on the show?

Dave starts by looking at mega cap stocks due to their large market capitalization impact, then searches for companies with upcoming earnings where Morning Star has a differentiated view, and finally considers stocks that might affect broader investment theses or themes.

What criteria does Dave use to choose his weekly stock picks?

Dave looks for stock picks related to the show's discussions, focusing on buy ideas over sell ideas. He prefers stocks that are undervalued with four or five-star ratings from Morning Star, have a wide or narrow economic moat, are in the lower end of the uncertainty rating scale, and have a good long-term fundamental story and market momentum.

What is the current status of lithium pricing according to the Morning Star Research?

Lithium prices are expected to start moving higher in the second half of the year, and despite the short-term fluctuation, the long-term forecast is for lithium to be under supplied until at least 2030 due to the growing demand for electric vehicles.

How does Dave view the stock of Lithium Americas?

Lithium Americas is a five-star rated stock but is considered very speculative. It is in the early stages of construction of its Thacker Pass project and appears to be on track and on budget, making it an interesting play for those willing to take on higher risk.

What is the viewer's question regarding AI and data center growth in utilities?

The viewer is asking for investment recommendations to capitalize on the theme of AI and data center growth, which is expected to increase electric demand.

Which utility stock does Dave recommend for playing the AI and data center growth theme?

Dave recommends WEC (Wisconsin Electric Company), which is rated four stars, has a dividend yield of over 4%, and is expected to benefit from the construction of data centers in Wisconsin.

What books does Dave recommend for understanding economic moats and investing?

Dave recommends 'The Wide-Moat Investor' for understanding economic moats, 'Distress Investing' for deep value plays, 'Financial Shenanigans' for detecting accounting gimmicks, 'Private Debt' for understanding changes in debt markets, and 'Mastering the Market Cycle' by Howard Marks.

What is the viewer's question about the Fed's history of rate cuts prior to a presidential election?

The viewer is asking if there is any history that supports the Fed cutting rates just before a presidential election and if such a move could be perceived as favoring one side in the election.

What is Morning Star's view on Palantir's stock performance?

Palantir's stock is considered volatile and has risen too far in the market's view, now trading at a premium to Morning Star's fair value estimate. The company is expected to benefit from increased AI spending but faces a high valuation.

What are Dave's thoughts on Intel's current situation and its stock?

Intel is trying to catch up after falling behind on the last chip upgrade cycle. Morning Star has reduced its fair value estimate due to increased competition from Qualcomm's Snapdragon Elite processors. The stock is currently trading close to fair value but is considered to have better stories elsewhere in the market.

What is the reason behind Snowflake's stock performance this year?

Snowflake's stock performance has been disappointing due to a management change, lowered guidance for 2025, and concerns about the company's ability to maintain revenue growth and improve operating margins.

Why is Toronto Dominion Bank's stock currently trading low?

Toronto Dominion Bank is dealing with restructuring and acquisition-related expenses, as well as a large provision for potential losses due to anti-money laundering practices under investigation. Despite these short-term pressures, the bank is rated four stars and is considered a long-term investment with a wide economic moat.

What are Dave's stock picks for companies with wide economic moats?

Dave's stock picks include Nike, Zimmer Biomet, Clorox, and Johnson & Johnson. These companies are considered core holdings with durable competitive advantages and are trading at discounts to Morning Star's intrinsic valuation.