2 Wide Moat Stocks to Consider

Susan Dziubinski: My name is Susan Dziubinski with Morningstar.

At Morningstar, our approach to stock selection is simple: we recommend investors buy stocks of companies with competitive advantages when they are undervalued. We summarize a company’s competitive advantages in our Morningstar Economic Moat Rating. Companies that we expect to be competitive for 20 years or more earn broad economic scores.

Today we’re talking about two companies whose moat ratings were recently upgraded to broad. But just because a company’s rating has been upgraded doesn’t mean its stock is a buy. Stocks of modernized companies may still be overvalued. In other words, good companies are not always good stocks to buy.

2 Wide Moat Stocks to Consider

1. APD Air Products and Chemicals
2. Linde LIN

Let’s move on to businesses. Morningstar upgraded the economic moat ratings of industrial gases companies Air Products & Chemicals and Linde from wide to narrow. Air Products and Linde serve end markets in a variety of industries, including chemical and healthcare, to name two.

Public industrial gas companies have historically generated lucrative returns on their invested capital. Although industrial gases typically represent a relatively small fraction of customers’ costs, they are essential to production. As a result, customers are often willing to pay extra and sign long-term contracts to keep their business running smoothly. And these long-term contracts and the resulting high switching costs help these companies generate predictable cash flows, able to withstand macroeconomic headwinds such as energy price volatility and production fluctuations. global industry.

We think Linde stock is worth $420 per share. Meanwhile, Air Products & Chemicals has a fair value estimate of $303. Air Products is the more attractive stock of the two from a valuation perspective today.

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Morningstar analyst Krzysztof Smalec provided the research on this segment.

Watch 3 Cheap and Reliable Dividend Growth Stocks to Buy to learn more from Susan Dziubinski.