#Morningstar #Google #StockPicks
These high-quality holdings of this outstanding fund manager look undervalued today.
00:00 Introduction
00:42 Comcast CMCSA
01:15 Alphabet GOOGL
01: 58 Meta Platforms META
At the Morningstar Investment Conference last month, the longtime manager of the highly rated FPA Crescent fund FPACX, Steve Romick, delivered a keynote where he spoke about lessons learned as an investor. One of those lessons was that there’s no bright line dividing growth stocks and value stocks. Instead, Romick believes that value investing is about buying the stock of a quality company when there’s a margin of safety—and then, having the patience to hold on as your thesis about the company plays itself out.
With that in mind, today we’re sharing three of the top wide-moat holdings in Romick’s FPA Crescent fund that currently offer new investors a margin of safety—or, in other words, stocks that are trading below Morningstar’s fair value estimates. These are cheap high-quality stocks to consider buying today.
The first cheap high-quality stock on our list is Comcast CMCSA. Comcast is the third-largest holding in FPA Crescent’s most recently reported stock portfolio. The stock looks significantly undervalued to Morningstar, with shares trading about 30% below our $60 fair value estimate. Morningstar’s analyst thinks that Comcast’s pricing and cost discipline delivered solid financial results during the first quarter, but broadband customer growth has been and will continue to be anemic. We expect Comcast to deliver modest growth with strong cash flow for the foreseeble future.
Steve Romick first bought our second cheap high-quality stock, Alphabet GOOGL, for FPA Crescent’s portfolio more than a decade ago. Like Comcast, Alphabet’s stock trades about 30% below our fair value estimate. Morningstar’s analyst was impressed by Google Search ad revenue growth and continuing strength in the cloud business during the first quarter, as well as consolidated margin expansion and news of a share buyback. However, he noted that You Tube Shorts continues to push overall You Tube ad revenue lower and economic uncertainty pushed network ad revenue lower. We think Alphabet has the necessary talent and technology to battle AI competitors, and we think shares are worth $154 each.
Rounding out our list of cheap high-quality stocks in FPA Crescent fund is Meta Platforms META, which Steve Romick first bought for the portfolio in 2018. Meta saw improvement in Reels impressions and ad prices during the first quarter, and Morningstar’s analyst increased our revenue projections, thereby boosting our fair value estimate on the stock up to $278 per share from $260. Despite the price runup in Meta’s stock since hitting lows in November 2022, the stock still looks slightly undervalued according to our metrics.
For more stock ideas, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.
Morningstar director Michael Hodel and senior analyst Ali Mogharabi provided the research behind this segment.
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