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Six-Pack of Values
03/13/2014 9:00 am EST
In Morningstar Stock Investor, Matthew Coffina suggests, "Investors can focus only on the most undervalued current holdings in our Tortoise and Hare model portfolios."
The six stocks featured below are currently our favorites for new money:
Philip Morris International (PM)
Among our holdings, Philip Morris is arguably the most exposed to depreciating emerging market currencies, since it doesn’t have any US sales. Unfortunately, currency fluctuations are an unavoidable tradeoff for emerging markets’ relatively stable cigarette volumes.
Foreign exchange rates won’t be a headwind forever, and I still find Philip Morris’ total return prospects highly attractive, driven by a 4.8% dividend yield.
Berkshire Hathaway (BRK-B)
Berkshire Hathaway’s sprawling empire is too complex to describe in a short paragraph. However, its numerous businesses have one thing in common: They were hand-picked by Warren Buffett because of their strong and improving competitive advantages and top-notch managements.
They also tend to be concentrated in the US, whose economy increasingly looks like the world’s strongest. Buffett is the inspiration for Morningstar’s whole approach to equity investing—what better way to emulate his philosophy than by owning the company he spent a lifetime building?
EBay seems to be playing second fiddle to Amazon.com (AMZN) these days, but while Amazon may be growing more quickly, eBay is far more profitable. I think there’s room for two successful e-commerce companies, particularly considering that the secular shift to online commerce is still in its early days.
All brick-and-mortar retailers are trying to figure out how to adapt to this new environment, and eBay is ideally positioned to serve as their technological partner.
HCP is an economically defensive, diversified real estate investment trust focused on healthcare properties. HCP primarily uses long-term triple-net leases, which leave tenants responsible for property operating and maintenance costs.
Only around 5% of leases come up for renewal each year, and tenants tend to be sticky. The firm has raised its dividend for 29 consecutive years, most recently by 3.8%. The new annual dividend rate of $2.18 puts the yield at 5.6%.
Coca-Cola’s business is built to weather challenging times, and I think the risk/reward profile remains attractive.
Management is exceptional; the company described its strategic vision for 2020 back in 2009 and has been steadily executing against the goals it set for itself ever since.
While consumption of carbonated soft drinks is declining in North America, the company still has plenty of room to grow in emerging markets and through its diversified portfolio.
We raised Baidu’s fair value estimate 47% in January, while the stock price fell 12%. As a result, Baidu looks meaningfully undervalued for the first time since mid-2013.
Investors could be in for a bumpy ride in the short-term, but in the long run, I think Baidu’s growth is driven by secular trends that transcend the broader economy: rising Internet penetration and a shift in advertising budgets from traditional media to online search.
Few companies in the world are growing as quickly as Baidu, and most of those trade at much richer valuations.
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