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5-Star Opportunities in Health Care, Consumer Stocks, and Semiconductors

By Rachel Haig | 01-21-10 | 06:00 AM

A quick look at the Market Valuation Graph remains disheartening if you're searching for stocks to buy right now--as the rally keeps trucking, the market as a whole looks a bit overheated, as it has for the last couple of months. However, there are still values to be had in beaten-down areas such as health care, the consumer market, and select firms in the semiconductor industry.

Health Care
We've talked at length in recent months about opportunities in the health-care sector amid continued uncertainty over reform. Nerves have calmed a bit, and large pharmaceuticals are no longer steeply discounted. However, two medical-equipment producers look attractive right now:

Becton Dickinson (BDX

)
Fair Value Uncertainty: Low | Economic Moat: Narrow
From the Analyst Report:
Becton, Dickinson's needle and surgical tool empire has provided investors with robust returns on capital for years. Now, largely because of the company's decades-long dedication to innovation and wise deployment of capital, its business is prospering even in this challenging economic environment.

Thermo Fisher (TMO

)
Fair Value Uncertainty: Medium | Economic Moat: Narrow
From the Analyst Report:
Thermo Fisher Scientific is a laboratory supply giant with an unmatched breadth of product offerings and the largest salesforce in the industry. The company's efforts to brand itself as a one-stop shop for its research customers as well as lessen its exposure to capital cycles are proving to be visionary in this tough economic environment.

Health-care analyst Matthew Coffina also thinks insurers UnitedHealth (UNH

) and WellPoint (WLP

) (both medium uncertainty, narrow moat) are attractive investments at current stock prices. He says reform will pose almost no fundamental threat to the managed-care business model in the near term, and managed-care organizations are likely to benefit from more than 30 million new potential customers. At the same time, he says the negative aspects of reform (such as cuts to Medicare Advantage) are already incorporated in the valuation models. Click here for his full analysis.

Consumers
Opportunities also remain in consumer-related stocks, as persistent worries about employment and housing market recoveries continue to weigh on businesses. Two wide-moat household names looked poised for recovery and attractively priced:

Procter & Gamble (PG

)
Fair Value Uncertainty: Low | Economic Moat: Wide
From the Analyst Report:
Procter & Gamble was caught flat-footed in its response to the dramatic downturn in consumer spending. Still, with its tremendous marketing resources and an impeccable balance sheet, we believe P&G is well-equipped to grow its brands over the long run.

Lowe's (LOW

)
Fair Value Uncertainty: Medium | Economic Moat: Wide
From the Analyst Report:
Lowe's massive scale and efficiency combine to create one of the few wide economic moats in the retail industry, in our opinion. While the timing of a full recovery in residential investment is uncertain, Lowe's home improvement revenue now is being driven more by maintenance rather than discretionary spending, dulling the potential impact of future housing market volatility.

Semiconductors
The semiconductor industry is finally showing signs of life. Morningstar semiconductor analyst Andy Ng says a rebound is under way and expects further improvement in the industry in 2010 as demand for laptops, netbooks, and smartphones picks up. Two companies that stand out as undervalued and positioned for solid performance are:

Applied Materials (AMAT

)
Fair Value Uncertainty: Medium | Economic Moat: Wide
From the Analyst Report:
We think a business upturn is on the horizon for Applied Materials. It is the dominant player in a fragmented industry and, with its broad product portfolio, competes in nearly every segment of the market, giving the firm a nearly ubiquitous presence in chip production.

ATMI (ATMI

)
Fair Value Uncertainty: Medium | Economic Moat: Narrow
From the Analyst Report:
We think ATMI has exciting long-term growth opportunities. As the continuous drive toward ever tinier semiconductor circuits becomes more complex, the need for additional new materials has grown dramatically. We think ATMI will be able to leverage its technology and customer relationships to maintain long-term profitability.

See more Portfolio Power insights.

About the Author
Rachel Haig is assistant site editor for Morningstar.com.

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