Investors have endured a lot of market uncertainty during the past year—and many market watchers expect volatility to persist for the foreseeable future. After all, central banks have signaled that it will continue to raise rates to combat inflation in 2023, and the threat of an economic recession looms.
During uncertain times, investors may want to own companies that offer some sense of certainty in terms of cash flows and company fundamentals. That’s where Morningstar’s Best Companies to Own list comes in. The companies that make up this list—130 in total—have significant competitive advantages, and we think those advantages are stable or growing. We believe the best companies have predictable cash flows and are run by management teams that have a history of making smart capital-allocation decisions.
But the best firms aren’t always the best stocks to buy at a given point in time. How much an investor pays to own a company—best or otherwise—is important, too. So, here we’re focusing on the 10 best companies with the most undervalued stock prices today.
10 Best Stocks to Buy Now—January 2023
The 10 most undervalued stocks from our Best Companies to Own list as of Jan. 6, 2023, were:
- Taiwan Semiconductor Manufacturing TSM
- Walt Disney DIS
- Tyler Technologies TYL
- TransUnion TRU
- Comcast CMCSA
- Equifax EFX
- Guidewire Software GWRE
- Masco MAS
- Anheuser-Busch InBev BUD
- Yum China YUMC
Here’s a little bit about why we like each of these companies at these prices, along with some key Morningstar metrics. All data is as of Jan. 6.
Taiwan Semiconductor Manufacturing
- Price/Fair Value: 0.59
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Semiconductors
The stock of the world’s largest dedicated contract chip manufacturer has struggled the past year because of macroeconomic uncertainty, sluggish demand, and new U.S. restrictions on doing business with Chinese customers. We expect demand uncertainty to persist in 2023, but we think Taiwan Semiconductor is undervalued as an outside beneficiary of cloud services over the long term, says Morningstar analyst Phelix Lee. Taiwan Semiconductor’s stock trades 41% below our fair value estimate of $133.
Walt Disney
- Price/Fair Value: 0.61
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Entertainment
Walt Disney made headlines when its board reinstalled Bob Iger as CEO in November 2022. Walt Disney continues to transform its business as the media industry evolves. Direct-to-consumer efforts including Disney+, Hulu, and ESPN+ are taking over as drivers of long-term growth as the firm transitions to a streaming future. Morningstar senior analyst Neil Macker adds that the company’s collection of Disney-branded businesses demonstrates pricing power that fortify the company’s economic moat. Disney stock is 39% undervalued relative to our $155 fair value estimate.
Tyler Technologies
- Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Software—Application
Like other software stocks, Tyler Technologies stock has gotten knocked for a loop during the past year. The stock is undervalued, trading 38% below our $500 fair value estimate. The company is the clear leader in the underserved niche market of government operational software, argues Morningstar senior analyst Dan Romanoff. We think there’s a decadelong runway to growth at Tyler, as the push for local governments to modernize their legacy enterprise resource planning systems intensifies.
TransUnion
- Price/Fair Value: 0.62
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Consulting Services
Another of the leading consumer credit bureaus, TransUnion faces headwinds from lower mortgage activity and also from foreign currency exchange; about one fourth of TransUnion’s revenue comes from international markets (though the international business is, in fact, performing well). Despite these headwinds, TransUnion’s competitive position remains intact, says Morningstar analyst Rajiv Bhatia. TransUnion stock trades 38% below our $98 fair value estimate.
Comcast
- Price/Fair Value: 0.63
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Telecom Services
Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. However, the falloff in Comcast stock during the past 12 months suggests years of steep customer losses, which we don’t think is likely, says Morningstar director Mike Hodel. While we don’t expect a return to the growth rates of the recent past, we think investors should focus more on the company’s cash flow and capital allocation instead. Comcast stock trades 37% below our fair value estimate of $60 today.
Equifax
- Price/Fair Value: 0.65
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Consulting Services
One of the leading credit bureaus in the United States, Equifax faces strong headwinds today as mortgage market weakness—and a subsequent decline in mortgage credit inquiries—takes a toll. We nevertheless think the market is being overly harsh: Equifax stock trades 35% below our $315 fair value estimate. In fact, we think Equifax’s Workforce Solutions segment is differentiated and continues to be a large profit driver for the firm, says Morningstar analyst Rajiv Bhatia, and we think the segment’s fundamentals are strong. It is now Equifax’s largest segment.
Guidewire Software
- Price/Fair Value: 0.67
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Positive
- Morningstar Capital Allocation Rating: Standard
- Industry: Software—Application
The leader in core software solutions for the property-casualty insurance market, Guidewire has faced some challenges as it transitions to the cloud, notes Morningstar senior analyst Dan Romanoff. That said, we see a significant opportunity for Guidewire to migrate more of its customers to the cloud in coming years, and we view the company as the primary winner as the property-casualty insurance industry continues to modernize. Guidewire stock trades 33% below our fair value estimate of $95.
Masco
- Price/Fair Value: 0.67
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Building Products & Equipment
Masco stock is undervalued by 33%, according to our metrics. Masco, which manufactures a variety of home improvement and building products, has revamped its management team and business model during the past several years. We like that management has eliminated the company’s cyclical and least-profitable businesses, cut costs, and firmed up the balance sheet, says Morningstar sector director Brian Bernard. We assign the stock a $74 fair value estimate.
Anheuser-Busch InBev
- Price/Fair Value: 0.68
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Exemplary
- Industry: Beverages—Brewers
Brewer Anheuser-Busch InBev has a vast global scale and regional density. The company has a history of buying brands with promising growth platforms and then expanding distribution while ruthlessly squeezing costs from the businesses, which contributes to its Morningstar Capital Allocation Rating of Exemplary. “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” says Morningstar director Philip Gorham. We think the market has underappreciated AB InBev stock for a long while: The stock trades 32% below our fair value estimate of $90.
Yum China
- Price/Fair Value: 0.69
- Morningstar Uncertainty Rating: Medium
- Morningstar Moat Trend Rating: Stable
- Morningstar Capital Allocation Rating: Standard
- Industry: Restaurants
Although the resurgence in coronavirus cases has put pressure on the Chinese restaurant sector, we think Yum China, the largest restaurant chain in China, is being unduly punished: Yum China stock is 31% undervalued relative to our fair value estimate of $84. Morningstar senior analyst Ivan Su argues that there’s reason to be confident about restaurants such as Yum China (whose brands include KFC, Pizza Hut, and Taco Bell, among others) that may be facing short-term headwinds but have the scale to be aggressive on pricing; that provide customers greater access via robust digital ordering, delivery, and drive-through options; and that boast healthy balance sheets.
The Best Companies to Own
You can review all of the companies on our Best Companies to Own list and dig into our methodology, which includes definitions for the key Morningstar metrics included in this article. Those with specific interests can drill down with our Best International Companies to Own, Best Sustainable Companies to Own, and Best Innovative Companies to Own lists, too.
