3 Top Stocks to Buy This Holiday Season

Key Concepts

• Economic Moat: A sustainable competitive advantage that allows a company to protect its long-term profits and market share from competitors. Morningstar defines a "wide moat" as a competitive advantage expected to last for 20 years or more.
• Long-Term Investment: An investment strategy focused on holding assets for an extended period, typically years or decades, to benefit from compounding growth and market appreciation.
• Brand Recognition and Connection: The ability of a company's brands to resonate with consumers, fostering loyalty and potentially influencing investment decisions.
• Valuation: The process of determining the current worth of an asset or company. In this context, Morningstar's "worth" refers to their estimated intrinsic value per share.
• Product Innovation: The development and introduction of new or improved products and services to meet evolving consumer needs and market demands.
• Cost Cutting: Initiatives undertaken by companies to reduce operational expenses, which can improve profitability and margins.
• Operating Margins: A measure of a company's profitability from its core business operations, calculated as operating income divided by revenue.
• Conglomerate: A corporation made up of several different, seemingly unrelated businesses.

Holiday Stock Gift Ideas for Long-Term Investment

Susan Jabinsky, co-host of the Morning Filter podcast, suggests gifting stocks as a holiday present, emphasizing long-term investment potential. The three selected stocks are from companies with wide economic moats, familiar and beloved brands, and are currently trading below Morningstar's estimated intrinsic value.

Stock Pick 1: Pepsi

• Company Overview: Pepsi is a global leader in the snacks and beverages industry.
• Economic Moat: Its wide economic moat is attributed to its extensive portfolio of well-known brands, including Pepsi, Mountain Dew, Gatorade, Lays, Cheetos, and Doritos.
• Investment Rationale: While growth has recently stalled due to sluggish performance in its snacks business, Morningstar believes that a renewed focus on health-focused product innovation and cost-cutting measures will drive future growth over the next decade.
• Valuation: Morningstar estimates Pepsi stock to be worth $166 per share.

Stock Pick 2: Nike

• Company Overview: Nike is the world's largest athletic footwear and apparel brand.
• Economic Moat: The company possesses a wide economic moat.
• Investment Rationale: Despite recent challenges such as a lack of product innovation, soft demand for sportswear, and increased competition, Morningstar views Nike's "win now" plan as solid. This plan involves a renewed focus on key partners, products, and connections to international athletics. Morningstar believes the market is underestimating Nike's potential to improve operating margins through new product releases, marketing campaigns, and price increases.
• Valuation: Morningstar estimates Nike stock to be worth $14 per share.

Stock Pick 3: Alphabet

• Company Overview: Alphabet is a conglomerate with famous brands like Google Search and YouTube.
• Economic Moat: Alphabet is viewed as a conglomerate of successful businesses spanning advertising, cloud computing, and self-driving cars, suggesting a broad economic moat.
• Investment Rationale: Although antitrust concerns surrounding its search business have been prominent, Morningstar is confident in Alphabet's long-term leadership in various sectors, including search, AI, video, and cloud computing.
• Valuation: Morningstar estimates Alphabet stock to be worth $340 per share.

Further Information and Resources

For additional stock ideas and insights, listeners are encouraged to tune into the Morning Filter podcast on their preferred podcast platforms and visit morningstar.com.

Conclusion

The presented stock picks—Pepsi, Nike, and Alphabet—are recommended as strong long-term holiday gift investments due to their established economic moats, strong brand recognition, and current valuations below their estimated intrinsic worth. Morningstar's analysis highlights the companies' strategies for future growth and profitability, despite facing current market challenges.