Often the hardest part of investing is deciding what to own. With more than 55,000 publicly traded companies worldwide, narrowing down the vast investable universe to a reasonable selection can be time-consuming and daunting. Luckily, there are analysts available to help.
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The following stocks have all earned five out of five stars from Morningstar. They also have wide economic moats, which indicates analysts believe the company has a competitive advantage that should last more than 20 years. In other words, these stocks are already ahead of the game and have the best chance of staying there.
So, if you’re looking for investment ideas, give one or more of these stocks some consideration. Just remember that nothing is guaranteed in investing, and even the best analysts can get things wrong. Never invest in funds you can’t afford to lose, no matter how great the company’s prospects may appear:
| Stock | Sector | Market Capitalization | Implied Upside* |
| Nike Inc. (ticker: NKE) | Consumer cyclical | $113.8 billion | 52.9% |
| Roche Holding AG ADR (RHHBY) | Health care | $238.8 billion | 48.6% |
| Anheuser-Busch InBev SA/NV ADR (BUD) | Consumer defensive | $112.8 billion | 61.3% |
| Ambev SA ADR (ABEV) | Consumer defensive | $34.2 billion | 45.5% |
| Rentokil Initial PLC ADR (RTO) | Industrials | $13.2 billion | 56.0% |
*Based on Nov. 13 closing price.
Nike Inc. (NKE)
Kicking off (pun intended) the list of five-star stocks is none other than the world’s largest footwear and apparel brand, Nike.
“We view Nike as the leader of the athletic apparel market and believe it will recover from its recent problems, such as a lack of product innovation, soft demand for sportswear and a CEO change,” writes Morningstar Senior Equity Manager David Swartz.
Nike does have a long roster of competitors, but analysts think it will be able to maintain its premium pricing over the next two decades. It also has an “exemplary” capital structure with more than enough cash and short-term investments to cover its $9 billion in debt. This should help it weather any challenges the apparel industry faces.
Swartz says investors can expect continued return with an anticipated dividend payout ratio of 40%. The stock is also trading at a considerable discount to its Morningstar fair market value of $117, which would be an upside of 52.9% from its Nov. 13 close of $76.52.
Roche Holding AG ADR (OTC: RHHBY)
Swiss biopharmaceutical and diagnostic company Roche may not be as recognizable a name as Nike, but it dominates its markets nearly as well.
“As the market leader in both biotech and diagnostics, this Swiss health care giant is in a unique position to guide global health care into a safer, more personalized and more cost-effective endeavor,” writes Karen Andersen, Morningstar director of equity research for health care.
Its competitive advantage is supported by the firm’s innovative pipeline and focus on biologics, which represent more than 80% of the company’s pharmaceutical sales, Andersen says.
Despite these positives, the analysts did lower the stock’s fair market value from $59 to $55 at the start of the year due to the strength of the Swiss franc. However, that still implies a 48.6% upside from RHHBY’s closing price of $37.02 on Nov. 13.
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Anheuser-Busch InBev SA/NV ADR (BUD)
During uncertain economic times, a good place to be is consumer defensive stocks. And one of the strongest consumer defensive stocks Morningstar covers is brewer Anheuser-Busch InBev, or AB InBev. It ranks as one of the top five consumer product companies based on earnings before interest, taxes, depreciation and amortization (EBITDA) — a measure of a company’s operating efficiency.
“We remain impressed with the firm’s ability to deliver normalized EBITDA growth, thanks to solid cost management execution,” writes Morningstar Equity Analyst Verushka Shetty. The firm recently increased its 2024 EBITDA growth outlook by 50%.
“Previous acquisitions have created a monster with vast global scale as well as regional density,” Shetty writes. This includes a monopoly-like position in Latin America and Africa.
The stock is trading at a considerable discount to its $90 fair market value, which is a 61.3% upside from BUD’s closing price of $55.80 on Nov. 13.
Ambev SA ADR (ABEV)
One of AB InBev’s subsidiaries is another five-star stock, Ambev, the largest brewer in Latin America and the Caribbean. Like its parent, Ambev has a monopoly-like position in several large markets, including Argentina, Brazil and Peru.
“Ambev is a highly profitable business,” Shetty writes. “The company has a well-entrenched cultural focus on cost management and implemented zero-based budgeting over a decade ago.”
Higher raw material costs in 2022 put a damper on that profitability, but Morningstar believes this will reverse by the end of 2024.
“In practice, we anticipate that some of the cost relief will be passed to the consumer, but lower costs will be beneficial to margins to a large degree,” Shetty writes.
The low-priced stock’s Morningstar fair market value is $3.23, well above its closing price of $2.22 on Nov. 13.
Rentokil Initial PLC ADR (RTO)
Rentokil Initial may not operate in the flashiest industry, but its pest-control and commercial hygiene services are used worldwide. As the largest commercial pest-control business, it has a leading market share in the vast majority of the 80-plus countries where it operates, according to Morningstar.
It has built and maintained this size advantage largely through acquisitions, of which it has completed more than 200 since 2015. One of its most notable and recently completed acquisitions was Terminix.
“The successful execution of the strategy has delivered a durable cost advantage for the pest-control business — the source of our wide economic moat rating for Rentokil Initial,” writes Morningstar Senior Equity Analyst Grant Slade.
But the strategy is not without risk. “Financial prudence will be paramount,” Slade adds. “Still, we remain in favor of Rentokil Initial’s acquisition bias, noting risk also exists in failing to further participate in the ongoing global industry roll-up” as more firms acquire pest-control companies.
The stock is also trading at a strong discount to its Morningstar fair market value of $40.30, which would imply a 56% upside from RTO’s closing price of $25.83 on Nov. 13.
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The 5 Best 5-Star Stocks to Invest In originally appeared on usnews.com
