Stocks for Choppy Markets
It’s been a bumpy ride in 2022 so far. This isn’t entirely unexpected: After all, we rolled into a new year with stretched stock market valuations, inflation worries, and a more aggressive Fed. As Morningstar’s chief markets editor Tom Lauricella noted earlier this week, “The air pocket just happened to come a lot sooner than expected.”
Where’s a stock investor to turn? Wide-moat stocks with unassailable competitive advantages. “These stocks typically hold their value better to the downside during market corrections,” explains Morningstar’s chief U.S. market strategist Dave Sekera. “In addition, if inflation is persistent, these companies typically exhibit strong pricing power to quickly pass-through cost increases to maintain margins.” And when you can get wide-moat stocks for less than they’re worth, even better.
I share the least undervalued names in the Morningstar Wide Moat Index in my Our Picks column this week. Polaris (PII) and Kellogg (K) are two of the cheapest stocks in the index today; read the article for the eight others that make the list. (Those who need a refresher on wide-moat stocks can watch our quick primer or dig deeper by reading What Makes a Moat?).
On a related note, Morningstar’s equity research team updated its 2022 inflation forecast; read more about it in Preston Caldwell’s article.
15 Funds for 2022 and Beyond
For those readers who are looking for new ideas but prefer funds over individual stocks, fear not! Morningstar director of manager research Russ Kinnel shared his best funds for 2022 and beyond this week. What does Russ suggest for fund investors in today’s choppy market? “The main things to focus on are your plan and good fundamentals,” says Russ. “Those are much more important than top-down considerations.”
That being said, one of Russ’ top ideas in the new year is Vanguard Total Bond Market Index (VBTLX). “The bond index fund is nice ballast for stock market sell-offs,” admits Russ–plus the fund’s expenses clock in at a slim 0.05% Find 14 other worthwhile funds in Russ’ article.
Do You Really Have to Rebalance?
I’m not going to lie: I’ve never been very good about following all of the standard financial advice I hear day in and day out at work. Sure, my portfolio’s pretty diversified. I continue to stuff as much of my income as I can into my 401(k). But I’ve never been very disciplined when it comes to rebalancing.
Given where I am in my investing journey, I should probably start paying more attention. At least that’s what Morningstar portfolio strategist Amy Arnott tells me. “If you’re a younger investor in your 20s or 30s and you have a couple of decades until retirement, you can afford to be a little bit more relaxed with rebalancing,” Amy says. The rest of us would do well to establish and stick to a rebalancing strategy. Amy and I talked about a few different approaches in a video that aired this week.
Grand Theft Auto (a longtime favorite in my house of gamers) publisher Take-Two Interactive (TTWO) announced that it is buying mobile game publisher Zynga (ZNGA) for $12.7 billion. Senior analyst Neil Macker likes the move strategically. “Take-Two has needed to shift its revenue mix toward mobile, and management has made some smaller acquisitions toward this goal,” he explains. “The purchase of Zynga supercharges this transformation and will make Take-Two the most leveraged toward mobile of the four traditional game publishers we cover.”
Morningstar assigns Take-Two a narrow Morningstar Economic Moat Rating with a stable Morningstar Moat Trend Rating and an Exemplary Morningstar Capital Allocation Rating. Based on where the stock trades today, we think shares are a steal.
The Best Companies to Own
This week, we published our inaugural list of “The Best Companies to Own.” The 100-plus companies on this list share several qualities that we at Morningstar think are critical traits for long-term business success. First, these companies have built significant competitive advantages–or wide economic moats–that allow them to keep competitors at bay. They then continue maintain or strengthen these competitive advantages over time and generate predicable cash flows. Lastly, they’re managed by astute capital allocators who adeptly manage their balance sheets.
But as editor in chief Nic Owens points out in “What Makes a Company Great?”: “Yes, these firms represent the cream of the crop of global industry–but that doesn’t mean you should fire off 123 buy orders in your brokerage app.” Rather, we suggest using the list as a starting point when researching high-quality, well-managed companies. As you dig deeper into the names, you may find that some fit your personal investing criteria better than others–and you’ll also find that some are undervalued but many aren’t. Consider our Best Companies list to be a watchlist of sorts, a place to come to when looking for new high-quality ideas.
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The economic recovery shouldn’t slow much, but renewed supply chain snarls could keep inflation high.
Is Your Bond Fund Really a Stock Fund in Disguise?
Higher-yielding bond-fund categories often come with more stock-like risk levels.
10 Wide-Moat Stocks on Sale
Undervalued high-quality stocks may be just the ticket in a choppy market.
Do I Really Need to Rebalance?
Rebalancing is more important for some types of investors than others.
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We believe these companies’ strong ESG management practices give them a long-term advantage.
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Strong equity gains provide bucketers with an ample source of cash flow for the years ahead.
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All portfolios posted strong gains in absolute terms, but the ETF portfolios crushed their mutual fund counterparts.
Value vs. Growth Funds: Value’s Revival Is Uneven
Value funds outperformed growth in 2021, but their advantage waned over the course of the year.
The Best Companies to Own: 2022 Edition
These companies stand out from the competition and can be good choices for long-term investing.
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Every little bit helps.
15 Funds for 2022 and Beyond
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Target-Date Fund Flows Bounce Back in 2021
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Why Have Stocks Been So Volatile?
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What Take-Two’s Purchase of Zynga Means
The combination will supercharge mobile transformation, Morningstar’s analyst says.
Will Cannabis Stocks Revive in 2022?
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AT&T Shares Deserve a Return Call
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An ESG Trailblazer Talks About Making Investing Moral, Greenwashing, and Sustainability Trends
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Grading the Academic Research on Stock Returns
How accurate have been the professors’ predictions?
Fidelity Magellan and the Paradox of Skill
How active equity management fell upon hard times.
New Year, New IRS Life Expectancy Tables
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Cullen Roche: Macro Is About Understanding the World for What It Is
The popular blogger and financial advisor discusses the macro outlook, the link between portfolio construction and investor behavior, his new ETF, and more.
What Is Payment for Order Flow?
A closer look at how brokerages use this practice and why it’s controversial.
What Makes a Company Great?
When we talk about great companies to own, here’s what we mean.
Protecting a Client’s Portfolio From Drawdowns
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Letting Your Money Work for You Into Later Life
This year is likely going to be a difficult environment for passive income generation, and it requires careful navigation.
Protecting a Client’s Portfolio From Inflation
To achieve any meaningful progress toward financial goals, investors need to clear the inflation hurdle.
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