A prominent investment theme of the past year is the outperformance of profitable companies with a unique competitive advantage.
Obvious examples of stocks in that category include Nvidia Corp. (NASDAQ: NVDA), which dominates the market for AI chips, and Salesforce Inc. (NYSE: CRM), whose user-friendly interface and ease of customization have made it the leader in enterprise data management.
Lesser-known stocks also fit the bill.
For example, International Flavors and Fragrances (NYSE: IFF) is a key supplier to the markets including food and beverage, personal care, and health and wellness. The S&P 500 is a market share leader in its industry.
The VanEck Morningstar Wide Moat ETF (BATS: MOAT) tracks, the Morningstar Wide Moat Focus Index of attractively priced companies with sustainable competitive advantages.
In other words, it’s comprised of stocks “At the intersection of quality and value,” according to Ioannis Pontikis, a senior equity analyst at Morningstar.
Here are a handful of stocks that meet that criteria:
Applied Materials, Inc. (NASDAQ: AMAT)
Shares of the chip gear maker vaulted 6.35% on February 16 after the company delivered better-than-expected first-quarter earnings, driven by fast-growing demand for AI chips.
In a statement, Applied Materials CEO Gary Dickerson said, "Our leadership positions at key semiconductor inflections support continued outperformance as customers ramp next-generation chip technologies critical to AI and IoT over the next several years."
The company also guided higher for the current quarter.
Applied Materials analyst forecasts show nine analysts boosting their price targets on the stock.
Cheniere Energy, Inc. (NYSE: LNG)
Cheniere Energy analyst forecasts show a price target of $198.70, an upside of 23.90%, and a consensus view of “buy.”
The company is a leading liquefied natural gas producer and exporter globally. It develops and operates a wide network of LNG terminals and pipelines.
Despite forecasts for growing demand, Cheniere stock is down 5.80% this year, even as analysts see triple-digit earnings growth this year. The Cheniere energy dividend yield is 1.08% and the company increased its shareholder payout for the past two years.
Charles Schwab Corporation (NYSE: SCHW)
In its most recent quarter the brokerage and asset management giant reported a 36% decline in net income, to 68 cents per share, although as you see using MarketBeat’s Schwab earnings data, that still came in ahead of views.
Revenue fell by 29% due to higher interest expenses, although that was offset by higher revenue from asset management and administration fees. The market rally in the fourth quarter of 2023 was largely responsible for those revenue increases.
The Schwab chart shows the stock forming a bullish consolidation below a December 15 high of $71.50, Schwab analyst forecasts show a price target of $69.69, an upside of 8.22%.
ServiceNow, Inc. (NYSE: NOW)
With a three-month return of 17.28 %, and with its stock trading just below an all-time high, the cloud-based workflow specialist doesn’t appear to be undervalued.
However, ServiceNow stock has more room to run, based on its stellar track record of earnings and revenue growth.
Wall Street is expecting ServiceNow earnings to decline in 2024 as subscription revenue slows.
However, the company has a partnership with Nvidia to develop AI capabilities to speed workflow processes, and it also collaborates with Amazon Inc. (NASDAQ: AMZN) Web services to offer the ServiceNow platform to AWS customers.
Microsoft Corporation (NASDAQ: MSFT)
Investors don’t generally think of the top-weighted component in the S&P 500 as being undervalued, but as with ServiceNow, analysts see more upside for Microsoft.
Like other technology stocks, Microsoft has been rallying as it’s become a leading artificial intelligence company, due in part to its early investment in OpenAI. That gives Microsoft a unique competitive advantage versus companies with a later start in the AI sweepstakes.
Wall Street expects Microsoft earnings to grow by 19% this year and by another 15% in 2025, which is exceptionally strong for a mature, well-established company.
