Weekly Digest: Stock Picks from Top Managers, Dividend Funds and Amazon.com
The Russian-Ukrainian conflict and the markets
It has been two weeks since Russia invaded Ukraine, and leaders and businesses around the world have continued to react this week. President Biden has banned imports of Russian oil into the United States. Big companies like Visa and Mastercard, Coke and Pepsi, McDonald’s and Starbucks have suspended operations in Russia.
With Russian stock and bond markets in shambles, index providers like MSCI and FTSE Russell have removed Russian stocks from their global benchmarks. “In my view, the message is as strong as any index maker can send from their perch, effectively: ‘You are on your own now, and your stock market is worth nothing,'” noted the director of global equity research. ETF from Morningstar, Ben Johnson. . Russian-focused exchange-traded funds in the United States have stopped accepting new money, and the many emerging-market equity and bond funds with exposure to Russian stocks have struggled.
For investors, volatility reigned. Morningstar Markets columnist Sandy Ward wrote an excellent article this week outlining lessons for investors in post-invasion markets. You can find all of our coverage for investors related to the Russian-Ukrainian conflict here.
Choice of stocks from the best managers
This week we released the second installment of our quarterly Ultimate Stock-Pickers series, focusing on buys and sells. (We published the article on high-conviction buying two weeks ago.) As a refresher, our list of Ultimate Stock-Pickers includes 26 investment managers that our research teams deem elite; every quarter, we review the portfolios of these leading investors, looking for new investment ideas to explore.
One of the most attractive stocks among these purchases: 3M (MMM). The stock is around 24% undervalued today, although senior analyst Josh Aguilar admits litigation risks will likely continue to mar the company’s story for the foreseeable future. That being said, 3M may be a compelling idea for dividend seekers, with its 4% forward dividend yield. “We believe the dividend is safe, given 3M’s prioritization among its capital allocation priorities and a strong balance sheet,” adds Aguilar.
Superb dividend funds
Speaking of dividend seekers: In my Our Picks column this week, I take a look at some of the top-rated dividend-focused equity funds and ETFs. While retirees generally love dividend-paying stocks for their income streams, many non-retired investors love “getting paid to wait” — or the idea of earning quarterly income from stocks while clinging to life. stock price appreciation. And this year, many dividend investors are outperforming the market: the Morningstar Dividend Growth and Morningstar Dividend Yield indices have outperformed the Morningstar US Market index year-to-date.
Part of the outperformance – at least for the dividend yield index – is due to the stunning gains in high-yielding energy stocks this year. In a recent episode of Dividend-Stock Deep Dive, Morningstar’s Director of Energy Research, Dave Meats, spoke about the dividend outlook for the energy sector. And this week, Morningstar DividendInvestor editor David Harrell has written an excellent primer on the variable dividend trend that seems to be sweeping the exploration and production industry in particular.
Stock of the week: Amazon.com
Wednesday, Amazon.com (AMZN) announced plans for a 20-to-1 stock split. The company is no stranger to stock splits, having split its stock a few times in the company’s history. Since stock splits have no fundamental impact on a company’s outlook, Morningstar analysts typically ignore them.
But stock split or no stock split, Morningstar thinks it’s a fundamentally sound company that’s trading at a premium. We give it a broad Morningstar Economic Moat Rating with a stable trend and an exemplary capital allocation rating. “Amazon remains well positioned to thrive from the secular transition to e-commerce and public cloud over the next decade,” said senior analyst Dan Romanoff. The icing on the cake: shares are trading about 32% below our fair value estimate of $4,100.
International Women’s Day
“Soon, women will play a bigger role in global wealth,” notes Leslie Norton, Morningstar’s editorial director of sustainability. “They will take control of more of the baby boomer assets and increasingly they will take on the role of breadwinners.”
In honor of International Women’s Day on March 8, Morningstar researchers examined women and investing from a variety of angles. We looked at the corporate pay gap in the C-suite and how sexual misconduct has become a business risk. We’ve shined the spotlight on remarkable companies led by female CEOs and excellent female portfolio managers. And we discovered why women invest less than men and how they can avoid a pension deficit. Find all this content and more in our special report, How Women are Breaking Stigma in 2022.
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