3 New Wide Moat Stocks to Consider
We upgraded our economic moat ratings on these stocks. Is it time to buy?
00:00 Introduction
00:58 Goldman Sachs Group GS
01:39 Interactive Brokers Group IBKR
02:12 W.W. Grainger GWW
Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar. When investing, it’s important to understand a company’s competitive advantages. Morningstar encapsulates a company’s competitive advantages in its economic moat ratings. Companies that we expect to successfully compete for 20 years or more earn wide economic moat ratings.
A company’s moat rating isn’t carved in stone. Economic moats can strengthen or erode over time as companies and industries change. But just because we’ve upgraded a company’s moat rating doesn’t mean investors should rush out and buy the company’s stock. The stocks of upgraded companies can still be overvalued.
Morningstar recently upgraded the economic moat ratings on a few companies to wide. These companies look overvalued today according to Morningstar, so we wouldn’t consider them stocks to buy at today’s prices. But given their competitive advantages, we think they make great additions to a watchlist of high-quality stocks.
The first new wide moat stock we’ll talk about today is Goldman Sachs. Goldman is, of course, a well-known full-service global investment bank. It’s the global leader in mergers and acquisitions advisory and maintains a near 10% share of the investment banking market by revenue. Global investment banking continues to consolidate around a small number of large firms like Goldman. And regulatory changes combined with better revenue diversification have significantly de-risked Goldman’s business since the global financial crisis. We think Goldman’s stock is worth $570 per share, and it trades well above that today.
Morningstar also recently upgraded its economic moat rating on Interactive Brokers Group. We think the firm has carved out a wide economic moat with its heavily automated platform and superior trade execution. Specifically, we think Interactive Brokers has a durable cost advantage given its high degree of automation that allows it to operate at structurally lower costs than even much larger competitors. Morningstar assigns a $46 fair value estimate to the stock, and it looks overvalued today.
The final upgraded company we’ll discuss is W.W. Grainger. Grainger is the largest industrial distributor in the highly fragmented maintenance, repair, and operations market. Its wide economic moat rating stems from its cost advantage over smaller competitors that lack scale and global reach. Grainger has added millions of stock-keeping units to its product catalog over the past few years, and it plans to add millions more in the future. That allows Grainger to grow its share of wallet, while using the same infrastructure. The stock looks a little rich as it trades above our $960 fair value estimate.
For more stock ideas, be sure to tune into The Morning Filter each week, wherever you get your podcasts. And visit Morningstar.com, too.
Morningstar director Sean Dunlop and analyst Nicholas Lieb provided the research behind this segment.
Subscribe to The Morning Filter on Apple podcasts, or wherever you get your podcasts. https://podcasts.apple.com/us/podcast/the-morning-filter/id1792280057
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