Growth stocks have hit an updraft this year, with the Russell 1000 Growth index climbing 33%.
But there are still growth stocks that are undervalued, Morningstar says. And here are four of those stocks that it recommends.
Moderna, the Biotechnology Firm
Morningstar moat (durable competitive advantage rating) on Moderna (MRNA) -): none. Morningstar fair value estimate: $266. Wednesday price quote: $126.
“We don’t think Moderna has yet developed the competitive advantages to earn an economic moat rating,” wrote Morningstar investment specialist Susan Dziubinski.
“But we do think the biotech firm has strong potential for its mRNA technology across infectious diseases, cancer, and rare disease therapeutics.” Moderna produced one of the top covid vaccines.
Also, “in a recent clinical trial, Moderna and Merck’s (MRK) -) experimental cancer vaccine, used in combination with Merck’s Keytruda, reduced the risk of melanoma spreading to other parts of the body,” Dziubinski noted.
Uber Technologies, the Ride-Hailing Titan
Morningstar moat on Uber Technologies (UBER) -): narrow. Morningstar fair value estimate: $68. Wednesday price quote: $47.25.
“Uber has become the largest on-demand ride-sharing provider in the world, with about 30% global market share, outside of China,” Dziubinski wrote.
“We think the company has carved out a narrow economic moat, thanks to the network effect it achieves with both riders and drivers. As demand on the firm’s platform increases, consumer and driver acquisition costs decline. That network effect is driving top-line growth and margin expansion.”
And Domino's has agreed to allow Uber Eats users to order Domino's directly on Uber’s platform, with Domino’s continuing to make the delivery.
Yum China, China’s Giant Restaurant Franchiser
Morningstar moat rating for Yum China (YUMC) -): wide. Morningstar fair value estimate: $84. Wednesday price quote: $59.
Yum China is the largest restaurant chain in China. It includes KFC, Pizza Hut and Taco Bell. “It’s the only company on the list that earns a wide moat rating, thanks to its significant cost advantages and strong brand recognition,” Dziubinski said.
“China’s re-opening led to record revenue and profits for the company in the most recent quarter, and we expect Yum China to enjoy unit and margin expansion ahead.”
Morningstar analyst Ivan Su sees long-term opportunities for Yum China to gain share in China’s fragmented restaurant market.
Snowflake, a Data Storage/Sharing Company
Morningstar moat rating for Snowflake (SNOW) -): none. Morningstar fair value estimate: $231. Wednesday price quote: $186.
It has nearly 30% of the Fortune 500 as its customers, Dziubinski said. “While we think that Snowflake’s unique multi-cloud strategies allow the company to benefit from high switching costs and even a network effect, we don’t think it has yet carved out an economic moat,” she said.
“But although existing customers exhibited slower spending growth in the most recent quarter — which led us to trim our fair value estimate — we still see ample upside here.”
Morningstar analyst Julie Bhusal Sharma said, “Snowflake has a massive runway for future growth and should emerge as a data powerhouse.”
