MSFT, BMY, CPB : Wide-Moat Stocks. Buy !
Warren Buffett and his basket of "Value" goods / stocks
Buffett’s Investment Principal.
One of Mr Warren Buffett investment guiding principals is to invest in undervalue stocks.
With 5,800 stocks listed in the US exchanges (based on 2023 data) available, investors are spoilt for choice.(see below)
To complicate matters, the gradual build up to the US presidential election in November 2024 is going to “mask” the volatility & sentiments in the US market.
On 02 Aug 2024, we already had a glimpse of that when US July 2024 Non-farm jobs reported a weaker data set than anticipated.
In light of the actual US market - post US President election, now could be a good time to start researching & building up on stock/s of companies with wide economic moats.
Why ?
Well, wide-moat companies tend to have :
Competitive advantages.
Pricing power that allow them to maintain profitability during tough economic times.
More predictable cash flows no matter the economic climate.
Operations in essential industries that are less sensitive to economic cycles.
We will look at 3 wide-moat companies (shortlisted by Morningstar) that are undervalued.
Buy for an Economic Slowdown:
Bristol-Myers Squibb.
This drug maker’s portfolio covers many therapeutic areas, including:
Cardiovascular.
Cancer.
Immune disorders — with a key focus in immuno-oncology, where the firm is a leader in drug development.
Morningstar is convinced that US market undervalues the ability of BMY’s pipeline to offset generic pressures.
They expect approval of Bristol’s (a) schizophrenia drug and (b) subcutaneous approval of its skin cancer drug to happen this year, 2024.
They also expect to see Phase 2 data for Bristol’s promising lung cancer drug in 2024, too.
Morningstar thinks Bristol stock is worth $63.
BMY as of 17 Sep 2024
YTD, BMY has fallen by -6.20% to $49.49 per share as of 17 Sep 2024.
It peaked at $52.25 per share, on 25 Mar 2024, .
It bottom at $39.66 per share, on 05 Jul 2024.
With “RSI” at “56”, it has not been overbought nor oversold.
Its 2 “support” levels are (1) $48.76 & (2) $48.50.
Its 2 “resistant” levels are (1) $50.32 & (2) $51.15.
Campbell Soup.
Company has changed its name to “Campbell” recently.
This is because the company (these days) is more than just soup.
Today, it is a leading packaged foods manufacturer with a portfolio of brands:
Pepperidge Farm.
Goldfish.
Swanson.
Prego, and many others.
The macro environment has been tough this year, but the company’s stringent cost management is yielding savings.
Morningstar expects Campbell will continue recognizing cost savings by removing complexity from (i) operations, (ii) investing in automation, and (iii) optimizing its supply chain and manufacturing network.
It will then put those savings toward investments in innovation & marketing, thereby supporting its relationships with retailers and consumers.
Morningstar thinks Campbell’s stock is worth $61.
YTD, CPB has gained +15.15% to $51.52 per share as of 17 Sep 2024.
It peaked at $51.89 per share, on 06 Sep 2024, .
It bottom at $40.92 per share, on 14 Feb 2024.
With “RSI” at “59”, it has not been overbought nor oversold.
Its 2 “support” levels are (1) $51.20 & (2) $50.87.
Its 2 “resistant” levels are (1) $52.02 & (2) $52.51.
Microsoft.
Microsoft’s wide economic moat stems from two segments:
Productivity and business processes.
Intelligent cloud.
Customers value Microsoft’s products as:
Stand-alone solutions.
Immense product breadth.
Tight integrated with one another.
With the company offering a wider set of related & compelling solutions, it will become even more deeply entrenched in its customers as they adopt multiple products.
Not forgetting that Microsoft is a leader in artificial intelligence (AI) as well, with its tightly-coupled partnership with OpenAI’s ChatGPT.
Morningstar thinks Microsoft stock is worth $490.
YTD, MSFT has gained +17.33% to $435.15 per share as of 17 Sep 2024.
It peaked at $467.56 per share, on 05 Jul 2024, .
It bottom at $367.75 per share, on 05 Jan 2024.
With “RSI” at “65”, it has not been overbought nor oversold.
When it’s RSI hit “70”, Microsoft will officially be “overbought”.
Its 2 “support” levels are (1) $431.00 & (2) $426.84.
Its 2 “resistant” levels are (1) $440.58 & (2) $446.00.
My viewpoints: (mine only)
Of the 3 wide-moat stocks highlighted, I think no further deep dived required for Microsoft that is already so entrenched in the S&P 500 index (since 22 Aug 1986).
It’s almost a grand dame of the 500 index.
One note-worthy point to highlight is Microsoft’s deepening involvement in AI development. (see above)
Its latest tie-up with BlackRock will further solidify its position.
How Microsoft benefit from the latest venture:
1. Increased revenue from data center operations:
By investing in AI infrastructure, MSFT can expand its data center capacity and increase its revenue from cloud computing services.
As AI applications become more prevalent, demand for data center resources will likely grow, and Microsoft will be well-positioned to capitalize on this trend.
2. Enhanced AI capabilities:
Collaboration with BlackRock will provide MSFT with access to additional resources and expertise in AI development.
This could help Microsoft improve its own AI products and services, making them more competitive in the market.
3. Strengthened financial position:
With BlackRock, a leading investment firm as partner, MSFT can access significant capital to fund its AI infrastructure projects.
Could strengthen Microsoft's financial position and reduce its reliance on debt financing.
4. Diversification of revenue streams:
Investing in AI infrastructure can help Microsoft diversify its revenue streams beyond traditional software and hardware products.
This can make the company less vulnerable to economic downturns or changes in the technology landscape.
5. Potential for future returns:
While the long-term financial benefits of the collaboration may be uncertain, Microsoft could potentially realize significant returns on its investment, when the AI infrastructure projects are successful.
Leading to increased profits and higher stock prices.
As for Campbell, it is a Consumer Defensive (sector), Packaged Foods (Industry) stock. This is a stock category that I am not familiar with.
It will require a little more time to research on Campbell.
Campbell vs Wilmar.
Based on Campbell’s market capitalization of $15 billion, I would rather spend my time to look at SGX-listed stock $Wilmar Intl(F34.SI)$ instead.
I believe it will be equally compelling a Buy.
Bristol-Myers Squibb.
This leaves Bristol-Myers Squibb (BMY) to share.
I have come across this US stocks on and off when reading.
Due to limited time to keep abreast with stocks (under radar), I have passed it over.
Now that we have crossed path again, perhaps the stars are “aligned”, telling me that I need to find out more about BMY (for myself).
For a start,
BMY - Earnings per share
BMY - Revenue
This is a profitable company based on its Q3 2022 to Q2 2024 quarterly results.
For earnings per share (EPS), except for Q1 2024 that was loss per share.
But there is a “perfect” explanation.
It was “caused” by BMS acquisition of Karuna Therapeutics.
The purchase resulted in a one-time, non-tax-deductible charge of $12.1 billion, that impacted the company's bottom line.
Its most recent Q2 2024 results have shown that bottom line is back in the green zone (again).
All is “fine & dandy” again.
Preliminary research seems “promising” for this drug maker.
Will definitely make time to deep dive into BMY.
Threat of a weakening US economy is real due to its ticking National Debt time bomb of $35.383 trillion and counting…! There is never a better time for “defensive” stocks and to start early…
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