Many stocks look expensive in today’s market, but it’s still possible to find bargains – some of which can be held for the next 10 years, according to pros. They shared their tips for picking cheap stocks with long-term prospects, as well as their top picks, with CNBC Pro. How to Pick Cheap Stocks Morningstar’s Susan Dziubinski said she believes in owning stocks that provide “some sense of certainty” in terms of cash flow and company fundamentals. Specifically, investment experts favor companies with “significant competitive advantages.” “We also prefer companies run by management teams that have a history of making smart decisions when it comes to capital allocation,” she said. “But great companies aren’t always great stocks: We don’t believe in paying for company stock Prices that are too high, that’s important.” Freddie Lait, chief investment officer of Latitude Investment Management, said being willing to invest in some cyclical stocks is key. Sometimes, he said, “cyclical businesses can generate very, very strong, predictable 10-year long-term returns. So if we buy a cyclical business, we do expect we’ll own it for 10 to 15 years.” What he’s looking for in companies Two qualities: 1) those companies that are “structurally growing”; 2) those companies that are near the bottom of the cycle from a valuation perspective. Wright said a good example was Bank of America, which he bought in 2016 – seven to eight years after the global financial crisis, when they were “completely out of favor”. He added that the shares have risen 150% since then and he still owns them today. For those looking for growth, two other such sectors that investors can consider are “cyclical opportunities,” namely U.S. homebuilding and energy, he said. Cheap stocks worth holding for the long term Morningstar’s Dziubinski lists three cheap stocks that investors can own over the next decade: consumer health company Kenvue, US regional bank US Bancorp and medical device company Zimmer Biomet. Wright, for his part, listed one he has owned in the past decade and expects to own in the next decade. Here’s what they have to say about each stock. Kenvue Dziubinski said factors such as an aging population and growing emerging markets will provide impetus for Kenvue’s brands, which include Zyrtec, Listerine, Tylenol and Nicorette. “We believe the company has built a broad economic moat due to its brand reputation, customer loyalty and cost advantages,” she said. Morningstar defines companies with wide economic moats as having competitive advantages strong enough to withstand competition and generate high returns on capital over 20 years or more. Morningstar U.S. Bank said the bank is in “strong financial position” and has been one of the most profitable banks in its coverage universe. “U.S. regional banks have experienced significant volatility since March 2023, but Morningstar is not concerned about U.S. Bancorp’s capital,” Dziubinski said. She noted that U.S. Bancorp has multiple fee-based businesses including payments, wealth Management and mortgage banking. Zimmer Biomet The company designs and manufactures orthopedic reconstructive implants, supplies and surgical equipment. Morningstar noted that it is a leader in large-scale combined reconstruction. Morningstar gives the company a broad economic moat rating, thanks to switching costs (which it says are substantial for orthopedic surgeons) and the intellectual property surrounding the company’s product portfolio. “We expect that an aging population and continued advances in technology available for younger patients will create strong demand for large joint replacements,” Dziubinski said. AutoZone Lait, of Latitude Investment Management, said U.S. auto parts retailer AutoZone has been the company he has sold since 2009 Cheaper stock that you have owned since then and are willing to hold that stock for the next five to 10 years. He said it was “highly durable,” able to generate consistent earnings, growing rapidly and likely to continue to do so.
