Disney, Nike Make Morningstar's 'Best-to-Own' Stock List

Morningstar assigns these companies wide moats, which means they have a strong and sustainable edge over competitors.

With the S&P 500 19% in 2022 (with only one trading day left in the year), now may be the time to do some bargain hunting for stocks.

So you might have a look at Morningstar's list of the “best stocks to own” in various industries. We’ve already given you stories about consumer defensive stocks that appear on the roster, financial services stocks, healthcare, industrial and technology stocks.

This story will focus on Morningstar’s best-to-own stocks that aren’t in any of those industries. Morningstar titles this portion of the list “Other Sectors.”

So how does the firm define “best stocks”?

It’s companies with wide moats, which means a strong and sustainable edge over their competitors. “We’re confident they will produce returns that outweigh their costs for the next 20 years or more,” Morningstar says.

“The strength of their competitive advantages is also either steady or increasing, which adds to our confidence in their long-term growth.”

ESG and Other Factors Are Important, too

Environmental/social/governance (ESG) factors also play a role. “The best companies have business models that allow them to effectively navigate evolving ESG issues that could materially impact their business,” Morningstar said.

Other metrics also are considered. “The companies that make our list have predictable cash flows, so our analysts can more accurately estimate how much the businesses are worth,” Morningstar said. “These companies also make smart decisions about how they manage and invest their money.”

Here are 10 of the “Other Sector” stocks cited by Morningstar that recently traded beneath its fair value estimates. They are listed in descending order of market capitalization.

1. Walt Disney  (DIS) - Get Free Report, the entertainment titan
2. Nike  (NKE) - Get Free Report, the athletic shoes/apparel seller
3. Comcast  (CMCSA) - Get Free Report, the media/telecommunications giant
4. Lowe’s  (LOW) - Get Free Report, the home improvement retailer
5. Starbucks  (SBUX) - Get Free Report, the coffee company
6. Enterprise Product Partners  (EPD) - Get Free Report, an oil and gas transport company
7. Dominion Energy  (D) - Get Free Report, a utility
8. Corteva  (CTVA) - Get Free Report, an agriculture chemicals provider
9. Ecolab  (ECL) - Get Free Report, a cleaning products maker
10. International Flavors & Fragrances Inc  (IFF) - Get Free Report, a producer of flavors and fragrances

Disney: Morningstar analyst Neil Macker puts fair value for the stock at $155. It recently traded at $87.

“We believe Disney is successfully transforming its business to deal with the ongoing evolution of the media industry,” he wrote in a commentary.

“The firm’s direct-to-consumer efforts, Disney+, Hotstar, Hulu, and ESPN+ are taking over as the drivers of long-term growth, as the firm transitions to a streaming future.”

Macker likes the company’s TV-network division, too. And “Disney's other components rely on the world-class Disney brand, sought after by children and trusted by parents,” he said.

Nike: Morningstar analyst David Swartz puts fair value for the stock at $134. It recently traded at $118.

“We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges despite near-term inventory and economic issues,” he wrote in a commentary.

“Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running and basketball with popular shoe styles.

“While it does face significant competition, we believe it has proven over a long period that it can maintain share and pricing.”

The author of this story owns shares of Disney, Nike, Comcast, Starbucks, Enterprise Product Partners and Corteva.