Although the equities sector has enjoyed a strong run recently, it might not be bad idea to consider wide-moat stocks. Sure, they’re not the sexiest investment category to target. However, the concept of a continued rise in the capital market might be stretching credulity.
For one thing, we must consider the technical dynamic. Indeed, the benchmark S&P 500 gained over 9% of value since the close of the Oct. 27 session. Since the start of the year, the index returned nearly 18%. However, it’s still conspicuously below the peak closing value set at the end of July. Put another way, it’s not entirely clear if enough of a correction has materialized.
Second, the bounce back seems suspect given the state of the consumer economy. To be fair, the latest read on inflation presents encouraging data. However, prices remain grossly elevated compared to pre-pandemic norms. As pressures extend, a greater correction may be necessary to rid the market fully of toxicities.
Thus, with uncertainties still in the air, these wide-moat stocks offer substantial relevance.
A multinational aerospace and defense conglomerate, RTX (NYSE:RTX) offers a range of solutions critical for national security. These include guided missiles, air defense systems, satellites, drones and cybersecurity. At the moment, the company features a market capitalization of around $116 billion. However, it’s on a relative discount. Since the January opener, RTX dropped 20%.
To be sure, excessive red ink is often a warning sign. However, RTX could be a strong candidate for overlooked wide-moat stocks. Presently, RTX trades at a forward earnings multiple of 15.49X. In contrast, the sector median stat comes in at 16.56x. Also, shares trade at 1.67x book value. Here, the industry median is much higher at 2.52x.
Fundamentally, current and ongoing geopolitical flashpoints should make RTX incredibly relevant. Also, tensions only seem to be rising, not fading. Now, while analysts only rate RTX a hold with a modest average price target of $84.18, the high-side target stands at $105.
An e-commerce firm focused on handmade or vintage items and craft supplies, it’s easy to see why Etsy (NASDAQ:ETSY) ranks among the overlooked wide-moat stocks. With inflation and rising borrowing costs broadly impeding consumer sentiment, discretionary spending isn’t high on households’ agendas. Sure enough, ETSY fell around 37% since the beginning of the year.
However, Etsy offers a distinct if not unique platform. Sure, e-commerce sites are a dime a dozen. But where Etsy distinguishes itself is that it directly focuses on creatives seeking to transition their talents and hobbies into legitimate businesses. Under present circumstances, the possibility of increased income streams should be appealing.
Even with the tough economic backdrop, Etsy continues to grow. For example, in the third quarter, the company posted $636 million in revenue, up 7% against the year-ago quarter. So, the red ink in the charts could be an opportunity. Analysts rate ETSY a consensus moderate buy with a $74.39 target. However, the max target stands at $125.
As a stalwart in the athletic apparel and equipment industry, Nike (NYSE:NKE) doesn’t appear to be one of the overlooked wide-moat stocks. Narrative wise, it’s difficult to say that the brand is overlooked considering that everybody is familiar with it. However, it hasn’t performed that well this year in the price charts. Since the January opener, NKE slipped 9%.
For full disclosure, the traditional financial stats undergirding NKE don’t really scream value. For example, shares trade at 28.6x forward earnings, well above the 11.63X ratio for the broader apparel industry. Also, it trades at 3.27x trailing sales, which seems overheated. However, Nike’s three-year revenue growth rate stands at 11.6%, above nearly 75% of its peers.
In other words, people continue to buy Nike products despite pressures to the consumer economy. And that’s clear based on the consistency of its gross margins. Analysts peg NKE a moderate buy with a $118.48 price target. Further, the high-side target stands at $150.
Estee Lauder (EL)
As a giant in the cosmetics space, Estee Lauder (NYSE:EL) wouldn’t ordinarily constitute one of the overlooked wide-moat stocks. However, since the start of the year, EL plunged 50%. It’s not without reason, either. Recently, the company disclosed that slower China demand negatively impacted its earnings performance. Still, a possible turnaround may be in play.
For example, in the trailing five sessions, EL popped up 7%. Some of this robust upside sentiment could be due to contrarian speculators trying to blow up the bears’ position. For instance, Fintel’s options flow screener – which filters exclusively for big block trades likely made by institutions – shows a large swathe of long-expiry sold calls.
To be sure, the financials could use some serious work. However, the company is consistently profitable. If the beauty care specialist can gain some traction, Estee Lauder could be interesting. Analysts rate EL a moderate buy with a $138.74 target. Also, the max target clocks in at $200.
A multinational conglomerate, Honeywell (NASDAQ:HON) is an industrial and applied science stalwart. Again, under normal circumstances, you wouldn’t expect to find HON on a list of overlooked wide-moat stocks. After all, Honeywell commands a market cap of around $125 billion. Still, it’s been a choppy ride. Since the start of the year, HON slipped 11%.
However, circumstances appear to be moving in a favorable direction recently. In late October, the company posted strong Q3 results and also beat its earnings guidance. Also, since hitting a recent bottom on Oct. 26, HON gained about 8%.
In full disclosure, the traditional financial stats for Honeywell aren’t exactly pretty. For example, HON trades at 19X forward earnings, which is overcooked. Still, the company is on an uptrend. Since 2020 to the trailing-12-month (TTM) basis, revenue has been consistently growing.
Analysts are overall bullish on HON, pegging it a moderate buy with a $215.42 price target. Further, the high-side target is $265.
Over the past several months, I’ve become sort of a Disney (NYSE:DIS) whisperer. Back in April of this year, CGTN America invited me to discuss the political woes impacting the Magic Kingdom. At the time, circumstances got heated between Florida Governor Ron DeSantis and the entertainment giant over certain hot-button issues. Ultimately, I viewed the matter as a free speech versus family sensibility issue.
More recently, Disney found itself in hot water with Charter Communications (NASDAQ:CHTR) and its Spectrum brand. This time, a conflict erupted over carriage fees. Again, I was asked by CGTN America to chime in with my analysis. Granted, while these two headwinds have largely simmered down (for the moment), it’s understandable why DIS may be considered one of the overlooked wide-moat stocks.
Nevertheless, I believe Disney does enjoy a moat despite its troubles. Sure, you’re going to pay a premium relative to earnings. However, this is a company that’s been consistently growing the top line since the pandemic-disrupted fiscal year 2020. Not shockingly, analysts rate DIS a moderate buy with a $107.23 target, implying over 14% growth.
Commanding a market cap of nearly $32 billion, Corteva (NYSE:CTVA) doesn’t immediately strike investors as one of the overlooked wide-moat stocks. Rather, the latter description – that of having a wide moat – seems much more appropriate. After all, the company represents a major agricultural chemical and seed enterprise. It’s extremely valuable to the global food supply chain.
However, Wall Street has other ideas, which is why it’s underappreciated among many investors at the moment. Since the start of the year, CTVA crumbled almost 21%. In the past 52 weeks, the security dipped more than 28%, which is problematic. Still, the red ink also means that shares now trade at 1.31x book value. This stat compares to the sector median value of 1.66x.
Fundamentally, it’s arguably difficult to maintain a bearish posture on CTVA indefinitely. That’s because the geopolitical realm which is impacting energy prices also affects food resources. At some point, we will need to bolster this industry, which may bode well for CTVA.
Finally, analysts peg shares a strong buy with a $56.43 target, implying nearly 21% upside.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.