Navigating the Market Maze: How to Identify Undervalued Treasures
In today’s volatile market, many stocks may seem overpriced. However, according to experts, there are still opportunities to uncover promising cheap stocks. Here are some insights from investment pros to help investors successfully pick and hold stocks for the next decade and beyond.
**The Art of Selecting Cheap Stocks: Exploring Key Criteria**
According to Susan Dziubinski of Morningstar, the secret lies in choosing stocks that provide stability in terms of cash flow and strong company fundamentals. Competitive advantages play a crucial role.
“We prioritize companies with a track record of smart investment decisions,” Dziubinski explains. “But remember, a great company does not always translate into a great stock. The key is to avoid overpaying for shares.”
Freddie Lait, chief investment officer at Latitude Investment Management, emphasizes the importance of embracing cyclical stocks. “Cyclical businesses can deliver exceptional long-term returns over a 10-year horizon,” Lait notes. “When we acquire a cyclical business, we intend to hold it for a decade or more.”
Lait identifies two characteristics he looks for: structural growth and companies trading near the bottom of their valuation cycles. He cites U.S. banks, which he invested in during the aftermath of the 2008 financial crisis, as an example. “They have since appreciated by 150%, and we continue to hold them,” Lait adds.
Other cyclical investment opportunities to consider, according to Lait, include U.S. home building and energy sectors.
**Promising Picks: Long-Term Holds for Your Portfolio**
Kenvue: A Healthcare Titan
Kenvue, a U.S. consumer health company, holds immense potential for investors over the next decade. Its brands, including household names like Zyrtec, Listerine, Tylenol, and Nicorette, benefit from tailwinds due to aging populations and growing emerging markets.
Morningstar attributes Kenvue’s success to its wide economic moat. “The company’s brand loyalty, customer satisfaction, and cost advantages provide a formidable barrier to competitors,” says Dziubinski.
U.S. Bancorp: Regional Banking Powerhouse
U.S. Bancorp, a regional U.S. bank, stands out for its robust fundamentals. Morningstar acknowledges the stability of its finances and its status as one of the most profitable banks in its portfolios.
“U.S. Bancorp navigates market volatility with ease, thanks to its diverse revenue streams from payments, wealth management, and mortgage banking,” Dziubinski says.
Zimmer Biomet: Leader in Medical Innovation
Zimmer Biomet, a leading provider of orthopedic implants and equipment, has a wide economic moat rating from Morningstar. The company dominates the large joint reconstruction market and possesses substantial switching costs and intellectual property.
“An aging population and advancements in technology for younger patients are expected to drive strong demand for Zimmer Biomet’s products,” Dziubinski predicts.
AutoZone: A Durable Investment
Lait’s pick for a cheap stock he’s held since 2009 is AutoZone, a U.S. automotive parts retailer. He remains bullish on the company’s longevity.
“AutoZone’s consistent earnings, rapid expansion, and durability make it an attractive investment for the next five to 10 years,” Lait explains.
By following these expert insights, investors can increase their chances of finding hidden gems in the stock market. With a keen eye for cheap stocks that offer long-term promise, they can build a diversified portfolio that will weather the market’s ups and downs.
Data sourced from: cnbc.com
