2 New Wide-Moat Stocks to Watch

Susan Dziubinski: Hi, I’m Susan Dziubinski with Morningstar.

Morningstar’s equity research team has been adding stocks to its coverage list—which means more stock ideas for investors to consider. Today, we’re looking at two companies that are new to coverage and that earn wide economic moat ratings.

How does Morningstar decide which stocks analysts will cover? Our coverage tilts toward larger companies that are of most interest to investors. Our analysts also cover a fair representation of names in each industry and include interesting mid- and small-size companies, too. Our analysts perform a discounted cash flow analysis to arrive at what we call a fair value estimate for what a company’s stock is worth. They’ll scrutinize the balance sheet, evaluate investments that management has made, and analyze the company’s shareholder distribution policies. They’ll also dig into a company’s competitive advantages, and those companies in superior business positions will be awarded a wide Morningstar Economic Moat Rating.

Now, let’s talk about the two new wide-moat companies. Both of these stocks are great candidates to add to a watchlist of wide-moat stocks.

The first new wide-moat stock under coverage is Kenvue KVUE. Kenvue is Johnson & Johnson’s former consumer segment, which the drugmaker spun off several weeks ago. Kenvue is the world’s largest pure-play consumer health company by revenue. Many of Kenvue’s brands are the global leaders in their respective segments. Some of the well-known brands in Kenvue’s sizable portfolio include Tylenol, Listerine, Aveeno, and Neutrogena. Kenvue’s wide economic moat rating stems from its brand reputation and entrenched relationship with retailers. We think the balance sheet is sound, and its investments when it was part of J&J were fair. We think the company’s planned quarterly cash dividend of about $0.20 per quarter is appropriate. We think Kenvue stock is worth $27.50 per share, and it looks about fairly valued today.

The second new wide-moat stock to coverage is Copart CPRT. Copart is a salvage vehicle auctioneer with only one large competitor. Copart operates auctions after vehicles are totaled through its online-only marketplace; that marketplace offers liquidity to both sellers, such as insurance companies, and buyers, including dismantlers, used vehicle retailers, and private individuals. This marketplace creates a network effect that underpins our wide economic moat rating, as sellers benefit from a sizable buyer network, and buyers benefit from higher vehicle volumes. The company has a healthy balance sheet and management that’s acutely focused on reinvesting in the business to drive growth. We think Copart stock is worth $77 per share and the stock looks overpriced today.

For more stock insights, be sure to subscribe to Morningstar’s channel and visit Morningstar.com.

Morningstar strategist Dave Whiston and analyst Keonhee Kim provided the research behind this segment.

Related Links

Kenvue: New Business, Optimized Portfolio, and Decades of Market Leadership Carve Out a Wide Moat

Copart: Digging a Wide Moat From Junked Vehicles