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Where to invest in Q4 2022? Morningstar’s top picks

Where to invest in Q4 2022 Morningstar's top picks

Broader market volatility and aggressive posturing by the Federal Reserve (Fed) have had market participants searching for safe havens. More traditional havens such as gold have thus far offered little safety as outsized outflows have been noted lately. 

Meanwhile, Morningstar, an American financial services firm, on October 6, discussed with their in-house experts the headwinds facing stocks and where investors could find shelter in Q4 2022. 

Morningstar’s Chief US strategist Dave Sekera initially touched on troubles seen in Q3 before moving onto areas where market participants could find value in Q4 2022. 

“Stocks are trading at about a 20% discount to a composite of our fair values. <…> We cover about 700 stocks at trade here in the US, so we take a composite of where those stocks are trading in the marketplace today. We compare that to that bottom-up intrinsic valuation conducted by our analyst team and compare it to that composite,” Sekera said.

He added: 

“So that’s how we come up with that price-to-fair value metric; right now, it shows the stocks are pretty much as cheap as they’ve been, going back through 2010.”

Where to hide in Q4

Wide-moat stocks with solid competitive advantages should do well in any environment, is an adage repeated by Morningstar analysts, despite the outsized losses the market has seen in 2022 in general. 

“In a volatile environment like this, I like sticking with those stocks you really are confident in; that are leveraged to those long-term secular themes. And I think that helps give investors the confidence to stick with those Investments through the ups and downs of the marketplace.”

In particular, Sekere mentioned three picks, one in the MedTech space is Zimmer Biomet Holdings (NYSE: ZBH), the second one is Illumina(NASDAQ: ILMN), and the third was Zoetis (NYSE: ZTS).

For ZBH, Sekera sees a 36% discount to fair value with the pandemic pushing operating procedures to the back burner, and now that backlog and the natural growth in the sector are going to propel the stock forward. 

Further, he states ILMN is at a 35% discount to fair value, with a product in the liquid biopsy space expected to hit markets in the next couple of years, with the ability to screen up to 50 different cancers, a major differentiator in the space.  

Finally, ZTS is at a 20% discount to fair value, according to Sekera, where the analysis was focused on pet care, where a trend for pet owners to spend more has been noted and could provide growth opportunities for the firm.

All three companies, according to Sekera, could see secular growth and possess wide moats, which should help return value to shareholders over time. 

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.    

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