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Here’s where some of the best managers are finding new opportunities in today’s market.
00:00 Introduction
00:20 Lululemon LULU
00:56 Air Products and Chemicals APD
01:31 Genuine Parts GPC
02:08 Merck MRK
I’m Susan Dziubinski with Morningstar. Today we’re talking about some stocks that top-rated value managers have recently taken new positions in. Given the success that these managers have enjoyed over the long term, their new-money purchases are noteworthy. These are definitely stocks to research further as long-term investments.
The team at Diamond Hill Large Cap DHLYX recently initiated a position in Lululemon LULU. Morningstar thinks this active wear maker has carved out a narrow economic moat, based on the strength of its brand. But the company’s stock is having a tough year, due to worries that its business in the Americas is getting hurt by rising competition and changes in consumer tastes. But Morningstar expects Lululemon to continue to benefit from the athleisure fashion trend—and to continue to command premium pricing due its popularity, product styling, and quality. We think Lululemon stock is worth $296 per share.
The team at Dodge & Cox Stock DODGX took a new position in Air Products and Chemicals APD. Morningstar thinks this leading industrial gas supplier has carved out a wide economic moat, thanks in large part to the high switching costs in its industry. The stock has typically traded at a discount to its industrial gas peers due to concerns about the risk profile of the company’s blue and green hydrogen project backlog. But during its recent earnings call, management announced a more disciplined strategy for dealing with that backlog. We assign Air Products stock a $322 fair value estimate.
And at Oakmark Fund OAKMX, Bill Nygren and his team have taken new positions in a couple of stocks: Genuine Parts GPC and Merck MRK. Genuine Parts sells aftermarket auto parts and industrial products. Morningstar assigns the company a narrow economic moat rating, due in part to its cost advantages over smaller peers. The stock is having an awful year, as weak end-market demand and cost inflation have hurt sales and margins. But we think the company’s vast distribution scale and strong customer relationships bode well for long-term growth. We assign Genuine Parts stock a $132 fair value estimate.
Merck, meanwhile, is a large drugmaker with an impressive portfolio of drugs and a growing pipeline that underpin its wide economic moat rating. Oncology drug Keytruda has been a driver of revenue, and management noted on its recent earnings call that it’s still looking at next generation obesity drug deals. Although the 2028 US patent loss on Keytruda will create pressure, Merck is shifting its R&D focus toward areas of unmet medical need in specialty-care areas. We think Merck stock is worth $120.
For more stock ideas be sure to subscribe to Morningstar’s channel and visit Morningstar.com.
Morningstar director Karen Andersen, senior analyst David Swartz, and analysts Noah Rohr and Krzysztof Smalec provided the research behind this segment.
What to watch from Morningstar.
2 Top Stocks for Value Investors to Buy Now https://youtu.be/fXnsVzRmj90?si=jVLfuIyrcezm22Ub
3 Top Stocks for Growth Investors to Buy Now https://youtu.be/7CJN4utsmm4?si=XW1NRlAP_MToj9AC
3 Wide Moat Stocks for Your Watchlist https://youtu.be/dSWLm6qpo8g?si=CIfAU-BGGsmVblQA
Read what our team is writing.
Susan Dziubinski https://www.morningstar.com/people/susan-dziubinski
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