You will rarely go wrong investing with Warren Buffett.
Over the past 10 years, for example, its Berkshire Hathaway shares (BRK.B) – Get a free report it returned 13.6% annualized, compared to 13.3% for the S&P 500.
So Morningstar put together a list of three stocks Berkshire purchased in the third quarter that Morningstar analysts consider significantly undervalued.
Taiwan semiconductor manufacturing
(TS extension) – Get a free report
Morningstar analyst Phelix Lee gives the company a wide moat (competitive advantage) and puts the fair value for the stock at $133. It recently traded at $82.
Taiwan Semi is the world’s largest dedicated contract chip manufacturer.
“The company has long benefited as semiconductor companies around the world have transitioned from integrated device makers to fabless [fabrication-less] designers,” wrote Lee.
Indeed, “the rise of fabulous semiconductor companies has maintained the growth of foundries, which in turn has encouraged more competition,” he said. “However, most of these new entrants are limited to low-end production.”
Lee cites two long-term growth drivers for TSMC. “First, the consolidation of semiconductor companies is expected to create demand for embedded systems built with the most advanced nodes,” he said.
“Second, the organic growth of artificial intelligence, the Internet of Things and high-performance computing applications can last for decades.”
(PARA) – Get a free report
Morningstar analyst Neil Macker gives the company a narrow ditch and puts the fair value for the stock at $45. It recently traded at $20.
“Formed from the bringing together of Viacom and CBS, the renamed Paramount derives an enduring competitive advantage from the CBS broadcast network, a valuable cable network portfolio with worldwide transportation, production studios, and a now-expanding content library,” wrote in a comment .
“Given our general premise that the value of high-quality content will continue to increase, the production studios are among the most attractive assets of the assembled company.”
Meanwhile, “we think revenue growth will be driven by streaming revenue from Paramount+ and Pluto TV,” Macker said.
“The two services build on the company’s strong content creation capabilities, vast library of programming, and secular trend toward increased adoption of streaming. As a result, Paramount+ can still carve out a position in this highly competitive market.”
RH (restoration hardware)
(RH extension) – Get a free report
Morningstar analyst Jaime Katz gives the company no ditches and puts the fair value for the stock at $383. It recently traded at $278.
“RH has gained share in the fragmented home furnishings market over the past few years by curating differentiated offerings from specialist global artisans,” he wrote in a commentary.
“The company has broadened brand awareness by expanding into underserved categories including modern, teen, and hospitality, where few peers have scale.” This is helping capture market share from boutique competitors, Katz said.
Additionally, “RH’s e-commerce business helps improve brand awareness, with the ability to market incremental SKUs [stock keeping units]supported by the launch of the World of RH platform,” he said.
Indeed, “demand for RH remains tied to housing and stock market conditions, which have recently impacted consumers’ willingness to spend on luxury home furnishings,” he said. This “supports our thesis without moat”.