Microsoft, Visa Make Morningstar's Top Growth Stock List

Growth stocks have creamed value stocks so far this year, with the Russell 1000 Growth index rising 21%, compared to a 2% decline for the Russell 1000 Value index.

With a move that big it’s natural to question whether growth stocks can maintain their momentum.

“We suspect that the market will be entering a stage where economic and monetary headwinds will slow additional gains over the first half of the year,” says Dave Sekera, Morningstar’s chief U.S. market strategist

Therefore, says Morningstar investment specialist Susan Dziubinski, “it’s best to adopt a long-term investing mindset when buying growth stocks today.”

She created a list of the 10 best growth stocks. The criteria include companies with wide Morningstar moat ratings and predictable cash flows. A wide moat means competitive advantages that will last at least 20 years.

Morningstar also views the companies’ management teams as making smart capital-allocation decisions. And the stocks were trading below Morningstar’s fair value estimates as if May 19. Here are the stocks starting with the most undervalued as of that date.

Tech Company, Cleaning Company

1. Tyler Technologies  (TYL) - Get Free Report, a provider of software to municipal governments. Morningstar fair value estimate: $475 (May 30). Tuesday’s closing price: $397.25.

“We view Tyler Technologies as the clear leader in the slow-moving and underserved niche market of government operational software,” Morningstar analyst Dan Romanoff wrote in a commentary.

“We believe there is a decade-long runway for normalized top-line growth near 10% at Tyler, especially as demand for software-as-a-service accelerates and the need to modernize local governments’ legacy resource-planning systems intensifies.”

2. Ecolab  (ECL) - Get Free Report, a producer of industrial cleaners. Morningstar fair value estimate: $210. Tuesday’s closing price: $165.80.

“As the global leader in the cleaning and sanitation industry, Ecolab provides products that help its hospitality, food-service, and healthcare customers do laundry, wash dishes, and maintain regulatory compliance,” wrote Morningstar analyst Seth Goldstein.

“With unmatched scale and a solid razor-and-blade business model, Ecolab's competitive advantages are firmly in place.”

As for size, the company's cleaning and sanitation scale dwarfs the competition,” he said. “Ecolab generates over three times the revenue of its largest rival.”

3. Autodesk  (ADSK) - Get Free Report, a business application software company. Morningstar fair value estimate: $240. Tuesday’s closing price: $195.04.

4. Intuit  (INTU) - Get Free Report, the tax and accounting software provider. Morningstar fair value estimate: $503. Tuesday’s closing price: $406.09.

5. Rockwell Automation  (ROK) - Get Free Report, a maker of automation products. Morningstar fair value estimate: $310. Tuesday’s closing price: $286.79.

Technology and Financial Services

6. ASML Holding  (ASML) - Get Free Report, a Dutch supplier of photolithography equipment to semiconductor makers. Morningstar fair value estimate: $750. Tuesday’s closing price: $728.26.

7. Visa  (V) - Get Free Report, the credit card giant. Morningstar fair value estimate: $241. Tuesday’s closing price: $221.64.

8. Microsoft  (MSFT) - Get Free Report, the software titan. Morningstar fair value estimate: $325. Tuesday’s closing price: $331.21.

9. S&P Global  (SPGI) - Get Free Report, a provider of financial data. Morningstar fair value estimate: $370. Tuesday’s closing price: $364.33.

10. Mastercard  (MA) - Get Free Report, the credit card stalwart. Morningstar fair value estimate: $389. Tuesday’s closing price: $367.50.

The author of this story owns shares of Microsoft and Mastercard.