Those new to investing often invest in something they’re familiar with. In fact, legendary investor Peter Lynch evangelized the idea of investing in what you know in his bestselling book, One Up on Wall Street.
But even Lynch would agree that there’s more to investing than simply buying Amazon stock AMZN because you’re a Prime member or buying Apple stock because you like the brushed metal aesthetic of the iPhone 15.
So how can you successfully invest in what you know? At Morningstar, we think that means investing in those brands that will have staying power and whose stocks are trading below what they’re worth. Today, we’re looking at three companies with popular brands that most investors know. These companies have significant competitive advantages that we expect to endure for decades—or as we at Morningstar would say, these companies have carved out wide economic moats. And perhaps most importantly, the stocks of these companies look undervalued today, as they trade below Morningstar’s fair value estimates.
3 Undervalued Stocks for Beginners
- Walt Disney DIS
- Nike NKE
Why We Like Disney Stock
The first stock on our list of undervalued stocks for beginners is Walt Disney. At Morningstar, we assign Disney a wide economic moat rating, thanks in part to the pricing power of its media networks segment, which includes ABC and ESPN, and its Disney-branded characters, franchises, and businesses, including its popular theme parks and experiences. We expect average annual top-line growth for Disney of 6% through fiscal 2027 and for overall operating margin to improve to 21% in fiscal 2027 from 8% in fiscal 2022. We think Disney stock is worth US$145.
Why We Like Nike Stock
Up next is Nike. Nike is the leader in the athletic apparel market and we believe it will overcome the short-term challenges it’s facing this year as inflation, elevated inventory, and uncertain demand muddy the company’s short-term outlook. We expect that the company will maintain premium pricing and generate economic profits for decades, and we assign the firm a wide economic moat rating. We think Nike’s stock is undervalued.
Why We Like Alphabet Stock
And the final name on our list of undervalued stocks for beginners is Alphabet. Alphabet’s popular brands of course include Google and also YouTube. Google dominates the global search market with more than a 90% share of search traffic worldwide, and we expect Google to maintain its leadership despite Microsoft’s move into generative artificial intelligence in Bing search. We think Google has done a great job of increasing its users’ dependence on its products, thereby increasing the longevity of its brand and the company’s wide economic moat. We assign Alphabet stock a fair value estimate of US$161.
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