History has shown that undervalued stocks of companies with the longest-lasting competitive advantages have outperformed over the long term.
Right now, two such stocks are handmade and vintage e-commerce platform Etsy ETSY and customer relationship management software provider Salesforce CRM.
At the Morningstar Investment Conference Tuesday, April 26, Morningstar’s director of equity research for index strategies Andrew Lane took a tour through Morningstar’s process of determining economic moats and highlighted stocks from the Morningstar Wide Moat Focus Index. The index tracks the lowest-priced companies with analyst-assessed competitive advantages expected to last more than 20 years into the future.
The index has outperformed the broader US equity market over time. Since the index’s inception in 2007, undervalued wide-moat stocks as a group have gained 529.9%, leaps and bounds ahead of the Morningstar US Market Index’s gain of 282.6% during the same period.
“Certainly, undervalued wide-moat companies aren’t going to outperform every month, or even every year,” Lane said, “But for a patient investor, this is very, very compelling.”