There are 60 companies worldwide on our 5-star list and Alibaba and Tencent are among the five to also have wide economic moats. These companies have the dual advantage of being signidicantly undervalued but with strong competitive advtanges. The other three are brewer Anheuser-Busch (ABI) and UK-listed tobacco firms Imperial Brands (IMB ) and British American Tobacco (BATS ). In contrast, the majority of the 5-star firms under Morningstar coverage have no economic moat, while 22 have a narrow economic moat.
In terms of European companies, France’s Renault (RNO ) is the second most undervalued, according to Morningstar estimates. It’s joined on this list Japan’s Nissan (7201 ) and two companies are part of a wider Renault-Nissan-Mitsubishi alliance, which makes almost 8 million vehicles a year. Germany’s Volkswagen (VOW3 ) is another automotive firm to join the 5-star cohort this month. Other EU firms on the wider list include Just Eat Takeaway (JET ), French telecoms firm Orange (ORA ) and Italian aerospace company Leonardo (LDO ).
Using the price/fair value ratio, investors can get an idea of where a company's share price stands in relation to its estinated fair price. For example, a P/FV ratio of 1 suggests a stock is perfectly fairly valued, whereas one with a ratio 0.50 is 50% undervalued.
“We believe appreciation beyond a fair risk-adjusted return is highly likely over a multiyear time frame. ... the current market price represents an excessively pessimistic outlook, limiting downside risk and maximizing upside potential. This rating encourages investors to consider an overweight position in the security”
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