- Markets have slumped this year, with the S&P 500 down 7%.
- Morningstar identified 11 mega-cap stocks that have become undervalued during the downturn.
- Insider breaks down each stock and shares the research firm’s analysis for two top picks.
The recent stock market downturn has created significant opportunities for investors to “buy the dip” – and has left some of the world’s largest companies a lot more affordable than they have been for a long time, according to research firm Morningstar.
“Since the beginning of the pandemic, many mega-cap stocks have soared higher, as they were able to capitalize on the changes brought about in consumer behaviors,” Morningstar’s chief market strategist Dave Sekera wrote in a recent research note. “[But] the downturn in the market this year has pushed numerous mega-cap stocks into buying range.”
Morningstar defined a mega-cap stock as any company with a market capitalization of over $200 billion. From a selection of 38 companies with a combined
of $19.5 trillion, they identified 11 undervalued stocks.
Stocks to buy
Morningstar analysts shared in-depth insights on two of the most valuable companies on their stock picks list – Alphabet and Amazon.
Alphabet and Amazon are down 9% and 15%, respectively this year, but they’re well-positioned to bounce back if the wider sell-off comes to an end, according to Morningstar.
“Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow,” senior equity analyst Ali Mogharabi, said. “We expect continuing growth in the firm’s cash flow… and we view investments of some of that cash in moonshots as attractive.”
“Amazon dominates its served markets, notably for e-commerce and cloud services,” senior equity analyst Dan Romanoff wrote. “It benefits from numerous competitive advantages and has emerged as the clear e-commerce leader given its size and scale, which yield an unmatched selection of low-priced goods for consumers.”
“From a retail perspective, we expect continued innovation to help drive further share gains,” he added. “We also look for continued penetration into categories such as groceries and luxury goods.”
Here are the 11 mega-caps that Morningstar believes now look cheap.