3 Cheap Stocks to Buy That the Best Value Managers Own

These undervalued stocks appear in the portfolios of highly rated large-cap value funds.

Susan Dziubinski 15 March, 2024 | 4:29AM
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To generate new stock ideas, we frequently dig into the portfolios of the industry’s best concentrated fund managers. Concentrated fund managers invest in fewer stocks than other managers, which means they’re choosy about what they buy. And when they buy, they typically have high conviction in their purchases.

Specifically, we’ve looked at stocks that appear prominently in the portfolios of the Gold-rated concentrated funds in Morningstar’s large-value category. We’ve isolated three stocks from the group that look undervalued today. They’re all attractive stocks to buy.

Comcast Stock

The first cheap stock that the best value managers own is Comcast CMCSA. Comcast’s core U.S. cable business enjoys significant competitive advantages that we expect will endure for two decades or longer; that’s why Morningstar awards Comcast a wide economic moat rating. We’re expecting modest growth but strong cash flows from Comcast for the foreseeable future. Our key assumption is that Comcast will hold on to its position as a dominant internet access provider in the U.S.—and that will provide a solid foundation upon which the company can build customer relationships and deliver pricing power. We think Comcast stock is worth US$60.

Charles Schwab Stock

The next cheap stock that the best value managers own is Charles Schwab SCHW. Schwab operates in brokerage, wealth management, banking, and asset-management businesses. We assign Schwab a wide economic moat rating, thanks to its massive scale and cost efficiencies. After interest rates reset, we expect Schwab to have many years of double-digit earnings growth. In the meantime, growth is less certain for the company, because interest rates are a key factor, with interest-rate-related revenue representing more than 50% of net revenue last quarter. While falling interest rates would be a headwind for earnings, they would be a positive for the company’s capital position. We think Schwab stock is worth US$80.

Alphabet Stock

Our final cheap stock top value managers own is Alphabet GOOGL. We expect the company to experience continuing search growth, despite Microsoft’s move to include generative AI in Bing and Google’s recent AI missteps. We also think the company’s YouTube and cloud businesses will contribute more to the top and bottom lines. From our perspective, the company has established durable competitive advantages, and we assign Alphabet a wide economic moat rating. We think Alphabet stock is worth US$171 per share.

 

The author or authors do not own shares in any securities mentioned in this article.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc Class A154.09 USD-1.23Rating
Charles Schwab Corp73.42 USD0.67Rating
Comcast Corp Class A40.24 USD1.56Rating

About Author

Susan Dziubinski

Susan Dziubinski  is director of content for Morningstar.com.

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