Susan Dziubinski: I’m Susan Dziubinski with Morningstar. This week, we’re pitting two stocks from Morningstar’s Best Companies to Own list against each other. Our Best Companies to Own list only includes firms with significant business advantages that should allow them to remain competitive for decades. To make the list, companies must also have predictable cash flows and be run by managers who have a history of making smart capital allocation decisions.
This week, Alphabet GOOGL and Microsoft MSFT are going head-to-head for the title of the best stock to invest in today. Let’s review them one by one.
Is the Best Stock to Buy Right Now Alphabet?
Alphabet has a portfolio of businesses that are at the forefront of a variety of verticals, including search, artificial intelligence, video, and cloud computing. We think the company has carved out a wide economic moat stemming from four separate moat sources, intangible assets, network effect, cost advantage, and customer switching costs. We think management’s investment strategy has been exceptional, combining smart M&A decisions with aggressive R&D investments. The company’s financial health is stellar, too. Granted, antitrust concerns around Alphabet’s core search business have cast a cloud of uncertainty over the stock. But we nevertheless remain confident that Google will maintain its leadership position in the long run. We think Alphabet’s stock is worth $237.
Find more of Morningstar’s view on Alphabet.
Is Microsoft the Best Stock to Invest In Today?
Microsoft has built a tech empire with its ability to deliver platform-as-a-service and infrastructure-as-a-service solutions at scale. The company has also emerged as a leader in artificial intelligence. We think Microsoft has carved out a wide economic moat stemming primarily from switching costs, with network effects and cost advantages also playing a part. The company’s balance sheet is sound, and management has done an exemplary job of executing a capital deployment strategy centering around reinvesting in the business, paying dividends, buying back shares, and making smaller acquisitions. We think Microsoft stock is worth $505.
Read more of Morningstar’s report on Microsoft.
So, which is the best stock to buy today, Alphabet or Microsoft? Given that Alphabet’s stock is trading at a deeper discount to our fair value estimate than Microsoft’s stock is, we think Alphabet is the best stock to buy today between the two.
Morningstar senior analyst Dan Romanoff and analyst Malik Ahmed Khan provided the research behind this segment.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
