The undervalued stocks of high-quality companies are compelling investments today.
The 10 Best Companies to Invest in Now
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 October 2022
The 10 most undervalued stocks from our Best Companies to Own list as of Oct. 12, 2022, were:
- Taiwan Semiconductor Manufacturing TSM
- Comcast CMCSA
- Anheuser-Busch InBev BUD
- Yum China YUMC
- Equifax EFX
- Walt Disney DIS
- International Flavors & Fragrances IFF
- ASML Holding ASML
- TransUnion TRU
- GSK GSK
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 Oct. 12.
Taiwan Semiconductor Manufacturing
- Price/Fair Value: 0.48
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Semiconductors
The stock of the world’s largest dedicated contract chip manufacturer has struggled this year because of macroeconomic uncertainty, a sluggish smartphone outlook, and a new U.S. Commerce Department rule restricting semiconductor-related exports to China. 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 52% below our fair value estimate of $133.
Comcast
- Price/Fair Value: 0.48
- 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. The falloff in Comcast stock suggests years of steep customer losses, which we don’t think is likely, says Morningstar director Mike Hodel. Comcast stock trades 52% below our fair value estimate of $60 today. The second quarter was a mixed bag, with zero net broadband customer additions. We think investors should focus instead on the company’s ability to generate strong cash flow and maintain a solid balance sheet despite lingering headwinds.
Anheuser-Busch InBev
- Price/Fair Value: 0.50
- 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 50% below our fair value estimate of $90.
Yum China
- Price/Fair Value: 0.52
- 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 48% undervalued relative to our fair value estimate of $86. 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 have the scale to be aggressive on pricing in the near term; that provide customers greater access via robust digital ordering, delivery, and drive-thru options; and that boast healthy balance sheets.
Equifax
- Price/Fair Value: 0.52
- 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 inquires—takes a toll. We nevertheless think the market is being overly harsh: Equifax stock trades 48% below our $315 fair value estimate. In fact, we think Equifax’s Workforce Solutions segment is differentiated and growing at a healthy clip, says Morningstar analyst Rajiv Bhatia, and we think the segment’s fundamentals are strong. It is now Equifax’s largest segment.
Walt Disney
- Price/Fair Value: 0.55
- Morningstar Uncertainty Rating: High
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Entertainment
We think Walt Disney is doing a fine job of transforming 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, and we expect parks to continue to flourish despite inflation worries. Disney stock is 45% undervalued relative to our $170 fair value estimate.
International Flavors & Fragrances
- Price/Fair Value: 0.57
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Specialty Chemicals
International Flavors & Fragrances is the largest specialty ingredients producer globally, spanning the food, beverage, health, household goods, personal care, and pharmaceutical industries. Morningstar strategist Seth Goldstein says IFF holds “an enviable asset portfolio,” and the firm’s proprietary formulations provide significant pricing power. International Flavors & Fragrances stock is 43% undervalued relative to our $150 fair value estimate.
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ASML Holding
- Price/Fair Value: 0.57
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Positive
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Semiconductor Equipment and Materials
ASML is the leader in photolithography equipment for semiconductor manufacturers. The company’s equipment design expertise, research and development cost advantages, and technological superiority to its competitors have contributed to the company’s wide Morningstar Economic Moat Rating, explains Morningstar strategist Abhinav Davuluri. We expect ASML to benefit from the proliferation of extreme ultraviolet lithography, he adds. ASML stock trades 43% below our fair value of $696.
TransUnion
- Price/Fair Value: 0.58
- 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 exchange; about one fourth of TransUnion’s revenue comes from international markets. Despite these headwinds, TransUnion’s competitive position remains intact, says Morningstar’s Bhatia. TransUnion stock trades 42% below our $98 fair value estimate.
GSK
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Drug Manufacturers—General
One of the largest pharmaceutical and vaccine companies, GSK’s innovative new product lineup and expansive list of patent-protected drugs earn a wide economic moat rating, says Morningstar director Damien Conover. Shares of GSK are under pressure because of increasing concerns regarding legal cases related to a potential cancer side effect from the over-the-counter heartburn medicine Zantac, according to several news sources. We view the pressure as overdone, as we do not expect major legal settlements regarding the medicine. GSK stock trades about 39% below our fair value estimate of $50 today.
The Best Companies to Own in 2022
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.