With the help of the Federal Reserve’s recently unveiled interest rate cut of 50 bps, it’s possible growth stocks will reenter the spotlight. Some market observers might argue they never left. Renewed focus on growth fare doesn’t necessarily imply bad news for value stocks.
In fact, some of these stocks are offering, well, lots of value. That could be beneficial to ETFs like the VanEck Morningstar Wide Moat ETF (MOAT ). While it isn’t a dedicated value strategy, the ETF leans heavily into stocks with that designation. More importantly, some of the value stocks currently populating the MOAT roster are among the best with the value designation.
That implies that, with MOAT, investors get a high level of quality with which to make a long-term value. That’s a potentially potent combination because it could take some time for value to come back into fashion and for value stocks to accrue rate-cut benefits.
MOAT Has Enviable Collection of Quality Value Stocks
MOAT is home to 55 stocks, none of which exceeds a weight of 2.92%. Alone, that implies the ETF has utility. That’s because traditional cap-weighted equity benchmarks have become increasingly concentrated in a small number of stocks.
What MOAT does have is an admirable concentration — a low-risk one at that — of some of the best value stocks to own for the long term, according to Morningstar ratings. That group includes Dow component and athletic apparel giant Nike (NKE).
“Nike’s consumer plan is led by its Triple Double strategy to double innovation, speed, and direct connections to consumers. The plan includes cutting product creation times in half, increasing membership in Nike’s mobile apps, and improving the selection of key franchises while reducing its styles by 25%. Nike stock trades at a 35% discount to our fair value estimate of $124 per share,” noted Morningstar analyst Margaret Giles.
Medical device maker Zimmer Biomet (ZBH) is another example of a MOAT holding that could be a long-term winner, providing support for the VanEck ETF along the way.
“The firm has cultivated close relationships with orthopedic surgeons who make the brand choice. High switching costs and high-touch service lead to strong loyalty to the brand. Zimmer also aims to accelerate growth through innovative products and improved execution, which we view as critical. Zimmer Biomet stock trades 39% below our fair value estimate of $175 per share,” added Giles.
Pfizer (PFE) and U.S. Bancorp (USB) are among other MOAT components that appeared on the Morningstar list.
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