Stocks for Choppy Markets, Funds for the New Year, and Rebalancing

And our inaugural Best Companies to Own list. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_smartinvestor&utm_content=33650&elqTrackId=c8d7e50846f04d90885d39995f16878b&elq=c260401243dc4f5db005d1bbe17d1865&elqaid=33650&elqat=1&elqCampaignId=15725) [Smart Investor] Smart Investor with [Susan Dziubinski, Director of Content]( [Susan Dziubinski] Stocks for Choppy MarketsIt’s been a bumpy ride in 2022 so far. This isn’t entirely unexpected: After all, we rolled into a new year with stretched stock market valuations, [inflation worries]( and a more aggressive Fed. As Morningstar’s chief markets editor [Tom Lauricella]( [noted earlier this week]( “The air pocket just happened to come a lot sooner than expected.” Where’s a stock investor to turn? Wide-moat stocks with unassailable competitive advantages. "These stocks typically hold their value better to the downside during market corrections," [explains]( Morningstar's chief U.S. market strategist [Dave Sekera](. "In addition, if inflation is persistent, these companies typically exhibit strong pricing power to quickly pass-through cost increases to maintain margins." And when you can get wide-moat stocks for less than they’re worth, even better. I share the most undervalued names in the Morningstar Wide Moat Index in my [Our Picks]( column this week. Polaris PII and Kellogg K are two of the cheapest stocks in the index today; [read the article]( for the eight others that make the list. (Those who need a refresher on wide-moat stocks can watch our [quick primer]( or dig deeper by reading [What Makes a Moat?](. On a related note, Morningstar’s equity research team updated its 2022 inflation forecast; read more about it in [Preston Caldwell’s article](. 15 Funds for 2022 and BeyondFor those readers who are looking for new ideas but prefer funds over individual stocks, fear not! Morningstar director of manager research [Russ Kinnel]( shared his [best funds for 2022 and beyond]( this week. What does Russ suggest for fund investors in today’s choppy market? “The main things to focus on are your plan and good fundamentals,” says Russ. “Those are much more important than top-down considerations.” That being said, one of Russ’ top ideas in the new year is Vanguard Total Bond Market Index VBTLX. “The bond index fund is nice ballast for stock market sell-offs,” admits Russ--plus the fund’s expenses clock in at a slim 0.05% Find 14 other worthwhile funds in Russ’ [article.]( Do You Really Have to Rebalance?Not going to lie: I’ve never been very good about following all of the standard financial advice I hear day in and day out at work. Sure, my portfolio’s pretty diversified. I continue to stuff as much of my income as I can into my 401(k). But I’ve never been very disciplined when it comes to rebalancing. Given where I am in my investing journey, I should probably start paying more attention. At least that’s what Morningstar portfolio strategist [Amy Arnott]( tells me. “If you're a younger investor in your 20s or 30s and you have a couple of decades until retirement, you can afford to be a little bit more relaxed with rebalancing,” Amy says. The rest of us would do well to establish and stick to a rebalancing strategy. Amy and I talked about a few different approaches in [a video]( that aired this week. Stock of the Week: Take-Two InteractiveGrand Theft Auto (a longtime favorite in my house of gamers) publisher Take-Two Interactive TTWO announced that it is buying mobile game publisher Zynga ZNGA for $12.7 billion. Senior analyst [Neil Macker]( likes the move strategically. “Take-Two has needed to shift its revenue mix toward mobile, and management has made some smaller acquisitions toward this goal,” he [explains](. “The purchase of Zynga supercharges this transformation and will make Take-Two the most leveraged toward mobile of the four traditional game publishers we cover.” Morningstar assigns Take-Two a narrow Morningstar Economic Moat Rating with a stable Morningstar Moat Trend Rating and an Exemplary Morningstar Capital Allocation Rating. Based on where the stock trades today, we think shares are a steal. The Best Companies to OwnThis week, we published our inaugural list of “[The Best Companies to Own](. The 100-plus companies on this list share several qualities that we at Morningstar think are critical traits for long-term business success. First, these companies have built significant competitive advantages—or wide economic moats--that allow them to keep competitors at bay. They then continue maintain or strengthen these competitive advantages over time and generate predicable cash flows. Lastly, they’re managed by astute capital allocators who adeptly manage their balance sheets. But as editor in chief [Nic Owens]( points out in “[What Makes a Company Great?”:]( “Yes, these firms represent the cream of the crop of global industry--but that doesn't mean you should fire off 123 buy orders in your brokerage app.” Rather, we suggest using the list as a starting point when researching high-quality, well-managed companies. As you dig deeper into the names, you may find that some fit your personal investing criteria better than others--and you’ll also find that some are undervalued but many aren’t. Consider our Best Companies list to be a watchlist of sorts, a place to come to when looking for new high-quality ideas. ADVERTISEMENT [media]( [media] Morningstar Specialists [Fidelity Magellan and the Paradox of Skill]( [Fidelity Magellan and the Paradox of Skill]( How active equity management fell upon hard times. John Rekenthaler [How Well Did the Retirement Saver Portfolios Perform in 2021?]( [How Well Did the Retirement Saver Portfolios Perform in 2021?]( All portfolios posted strong gains in absolute terms, but the ETF portfolios crushed their mutual fund counterparts. Christine Benz [Best Sustainable Companies to Own: 2022 Edition]( [Best Sustainable Companies to Own: 2022 Edition]( We believe these companies’ strong ESG management practices give them a long-term advantage. Leslie Norton [10 Wide-Moat Stocks on Sale]( [10 Wide-Moat Stocks on Sale]( Undervalued high-quality stocks may be just the ticket in a choppy market. Susan Dziubinski [15 Funds for 2022 and Beyond]( [15 Funds for 2022 and Beyond]( Here are some great funds for the long haul. Russel Kinnel [Why Have Stocks Been So Volatile?]( [Why Have Stocks Been So Volatile?]( 5 charts on how the markets adjusted to a new, more aggressive Fed policy outlook. Tom Lauricella [3 Things Retirees Should Watch in 2022]( [3 Things Retirees Should Watch in 2022]( Keep an eye on inflation, interest rates, and expected spending in the year ahead. Christine Benz, Susan Dziubinski [How Well Did the Bucket Portfolios Perform in 2021?]( [How Well Did the Bucket Portfolios Perform in 2021?]( Strong equity gains provide bucketers with an ample source of cash flow for the years ahead. Christine Benz [ An ESG Trailblazer Talks About Making Investing Moral, Greenwashing, and Sustainability Trends]( [An ESG Trailblazer Talks About Making Investing Moral, Greenwashing, and Sustainability Trends]( An interview with Amy Domini, founder and chair of Domini Impact Investments. Leslie Norton [Is Your Bond Fund Really a Stock Fund in Disguise?]( [Is Your Bond Fund Really a Stock Fund in Disguise?]( Higher-yielding bond-fund categories often come with more stocklike risk levels. Amy C. Arnott, CFA [Grading the Academic Research on Stock Returns]( [Grading the Academic Research on Stock Returns]( How accurate have been the professors' predictions? John Rekenthaler Popular This Week [Cheap Stocks With 2021's Largest Fair Value Upgrades]( These undervalued stocks had the largest valuation increases by Morningstar analysts during 2021. Jakir Hossain [New Year, New IRS Life Expectancy Tables]( These new tables come just as America experiences a downtick in life expectancies because of the coronavirus and its reverberations. Natalie Choate [Target-Date Fund Flows Bounce Back in 2021]( Fidelity and American Funds dominate, while Vanguard sees a seismic shift to its CITs. Megan Pacholok [Value vs. Growth Funds: Value's Revival Is Uneven]( Value funds outperformed growth in 2021, but their advantage waned over the course of the year. Katherine Lynch [An Investor’s Guide to the Biden Administration in 2022]( Some legislative priorities tracked with our expectations in 2021, but the fate of Build Back Better is still unclear. Aron Szapiro Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2022 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602