Every month, my colleague Shani reveals the top 5 buy and sell trades by Morningstar Investor subscribers. Today I'm going to reveal the top ten US-listed shares held as of July 29th.

Before we get to the top ten, let’s look at some big names that didn’t make it. In fact, these names didn’t even make the top 15.

  • Netflix and McDonalds missed out...
  • Top ten S&P 500 stocks Broadcom and Eli Lilly weren’t there...
  • Industries with plenty of Aussie alternatives didn’t feature much either…

The ASX200’s 30%+ weighting to financials could explain the absence of JP Morgan and Bank of America. And perhaps you don’t need Walmart or Costco when you have Woolies and Wesfarmers.

Australia’s markets aren’t exactly stacked full of global consumer brands but stocks like Coke, Proctor & Gamble and Philip Morris were nowhere to be seen. Is this a reflection of the difference in tax on foreign dividends versus franked domestic ones?

Who knows. Here are the names that did make the top ten.

10. Walt Disney Co ★★★

Morningstar Fair Value: USD 427
Price on July 29: USD 437
Moat: Wide
Uncertainty: Low

It hasn’t been the best five years or so for Disney (NYS: DIS) shares, but that doesn’t stop it from making the top ten.

According to Morningstar’s Matthew Dolgin, recent struggles at the company are related to the shift from the linear television model—where nearly all U.S. households subscribed to a pay-TV service offered by distributors like the cable and satellite providers—to the direct-to-consumer, or DTC, streaming model.

The attraction of Disney’s top-tier networks, led by ESPN, ABC, and The Disney Channel, resulted in this package of Disney channels being included in nearly all subscriptions at industry-leading rates. Relatively high levels of television viewership also boosted advertising revenue. Cord-cutting and a decline in linear viewership has dampened both of those revenue streams.

Dolgin maintains his Wide Moat rating for Disney. Ultimately, he believes the firm’s ownership of timeless characters and franchises, and its ability to continue creating and attracting top-tier content, outweigh the near-term challenges it faces related to an evolving media industry.

Although we think it’s likely that a media industry not built upon the traditional cable television bundle will keep Disney from returning to the level of economic profitability it routinely achieved in years past, we still expect the firm’s returns on invested capital to comfortably exceed its cost of capital over the next 20 years.

Disney shares currently trade modestly above our estimate of Fair Value and command a 3-star Morningstar rating (out of five). For more information on terms like Moat and Star Rating, there’s an explainer at the foot of this article.

9. Berkshire Hathaway B ★★★

Fair Value: USD 427
Price on July 29: USD 437
Moat: Wide
Uncertainty: Low

Warren Buffett and Charlie Munger’s masterpiece makes it in at number nine. Given the demi-god status of these two men, this doesn’t come as much surprise.

Berkshire Hathaway (NYS: BRK.B) is a conglomerate of wholly owned insurance operations, several wholly owned noninsurance businesses including the Burlington North Santa Fe Railway and Berkshire Hathaway Energy, as well as a large securities portfolio. The latter includes big equity stakes in Apple, Bank of America, Coke, American Express and Occidental Petroleum.

Morningstar’s Berkshire analyst Greggory Warren assigns the company a Wide Moat. This stems from Narrow Moat ratings for Geico and Berkshire Hathway Energy, a Wide Moat rating for BNSF’s railway assets and a feeling that Berkshire’s unique structure meaning that the firm’s economic moat is more than the sum of its parts.

Berkshire’s insurance businesses generate temporary cash holdings that arise from premiums being collected in advance of future claims. This allows Berkshire to generate returns on these funds, which are known as “float”. These funds have tended to come at little to no cost to Berkshire, given the company's proclivity for generating underwriting gains the past several decades.

Berkshire’s B class shares trade at $438, which is slightly above our analyst’s $427 estimate of Fair Value.

8. Alibaba ADR ★★★★ 

Fair Value: USD 96
Price on July 29: USD 77
Moat: Wide
Uncertainty: High

I wasn’t expecting to see Alibaba (NYSE: BABA) in this list but here we are. The Chinese tech giant's US-listed ADR makes it in at number eight.

Alibaba comprises of several businesses including its core e-commerce platform businesses Taobao, Tmall and AliExpress, its cloud computing segment AliCloud and a 31% stake in financial technology provider Ant Financial (formerly Alipay).

Alibaba marketplaces were involved in 62% of Chinese online retail sales in the year up to March 2023. However, this fell from 72% in the previous year as the company lost share to competitors like Pinduoduo and Douyin.

Despite increasing competition, Morningstar’s Chelsey Tam maintains her Wide Moat rating based on Alibaba’s strong network effect, as the value of the platform to consumers increases with a greater number of sellers and vice versa. Even if these new competitors are successful in generating long-term durable profit, she thinks Alibaba will always have its place in China’s increasingly complex retail market.

Tam thinks Alibaba ADRs are worth USD 96 each compared to a current price of around USD 77. She assigns an Uncertainty level of Very High to this valuation, citing intense and fast-evolving competition in China’s e-commerce landscape, regulatory scrutiny from the Chinese government and past lapses in corporate governance.

7. Meta Platforms ★★

Fair Value: USD 400
Price on July 29: USD 465
Moat: Wide
Uncertainty: High

From here on in, we’re in familiar company.

Meta’s Facebook, Instagram, Messenger, and WhatsApp producsts are among the most popular social media websites and apps worldwide. Strong user growth and engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm.

Morningstar’s Michael Hodel assigns Meta (NAS: META) a Wide Moat rating based on network effects around its massive user base, and intangible assets consisting of a vast collection of data that users have shared on its various sites and apps. Given its ability to profitably monetize its network via advertising, he thinks Meta will more likely than not generate excess returns on capital over the next 20 years.

As the clear-cut social media leader, we believe that Meta's offerings have established strong network effects, where all of these platforms become more valuable to its users as people use these services. These network effects serve to both create barriers to success for new social network upstarts, as well as barriers to exit for existing users who might leave behind friends, contacts, pictures, memories, and more by departing to alternative platforms.

At a current price of around $465 per share, Meta currently trades around 16% higher than Hodel’s Fair Value estimate of $400. They currently have a 2 star Morningstar rating.

6. NVIDIA ★★★

Fair Value: 105
Price on July 29: 113
Moat: Wide
Uncertainty: Very High

Nvidia (NAS: NVDA) is the leading supplier of graphic processing units or GPUs. These components were originally used to offload graphic processing tasks for PCs and video games but are now also used to efficiently run the matrix multiplication algorithms needed to power artificial intelligence models.

Our Nvidia analyst Brian Colello believes Nvidia has a wide economic moat thanks to its market leadership in GPUs and other hardware and software tools needed to enable the growing market around AI. In the long run, he expects tech titans to strive to find second-sources or in-house solutions to diversify away from Nvidia in AI. But these efforts will most likely chip away at, rather than supplant, Nvidia’s AI dominance.

After a recent 10-for-1 stock split, Nvidia shares trade at around $111 per share. This is roughly in line with Colello’s Fair Value estimate of $105. They currently have a three star Morningstar rating.

5. Tesla ★★

Fair Value: USD 200
Price on July 29: USD 220
Moat: Narrow
Uncertainty: Very High

In less than a decade, Tesla (NAS: TSLA) went from a startup to a globally recognised luxury automaker with its Model S and Model X vehicles.

Tesla competes in the entry-level luxury car and midsize crossover sport utility vehicle markets with its Model 3 and Model Y electric vehicles. Meanwhile, plans to launch an affordable SUV and luxury sports car are also afoot. Tesla is attempting to take a larger share of its customer’s car related spending through software, insurance and charging offerings.

Morningstar’s Tesla analyst Seth Goldstein awards Tesla a Narrow Moat based intangible assets and cost advantage. The company’s strong brand cachet as a luxury automaker commands premium pricing, while its EV manufacturing expertise allows the company to make its vehicles cheaper than its competitors.

Tesla shares currently trade at around $232 compared to Goldstein’s $200 Fair Value estimate. He assigns an Uncertainty rating of Very High due to the cyclical nature of the vehicle business and an influx of new competition in the electrical vehicle space.

4. Amazon ★★★

Fair Value: USD 193
Price on July 29: USD 182
Moat: Wide
Uncertainty: High

Amazon (NAS: AMZN) dominates its served markets, most notably for e-commerce and cloud services. In e-commerce, Amazon’s scale and unmatched selection of low-priced goods for consumers makes it the clear leader. Meanwhile, the company is also a top provider of public cloud services through Amazon Web Services.

Morningstar’s Amazon analyst Dan Romanoff assigns Amazon a Wide Moat due to its competitive strength in both of its key segments.

The unmatched scale of Amazon’s e-commerce marketplace leads to network effects as more buyers and sellers continually attract more buyers and sellers. The company’s retail operations also benefit from scale based cost advantages and the company’s strong brand.

Amazon’s cloud customers rely on AWS to provide several parts of their core IT infrastructures. This business benefits from immense switching costs as changing to a different system carries high levels of operational risk through the potential for disruption. It also entails the very real costs of re-training staff on new systems. Enterprises therefore rarely change provider.

At a current share price of $183, Amazon shares trade roughly in line with Romanoff’s fair value estimate of $193 per share. The stock currently has a 3-star Morningstar rating.

3. Apple ★★

Fair Value: $170
Price on July 29: $217
Moat: Wide
Uncertainty: Medium

Apple (NAS: AAPL) needs no introduction. It has cemented its position atop the consumer electronics industry with a focus on a premium ecosystem of tightly integrated hardware, software, and services.

Morningstar’s Apple analyst William Kerwin assigns the company a Wide Moat rating. He sees Apple’s most important moat source as the switching costs for its ecosystem of software, driven by iOS on the iPhone. Apple’s products become even more entrenched when a customer adopts two or more. Kerwin thinks Apple’s ability to widen its portfolio of user devices helps augment its existing switching costs.

The Apple Watch and AirPods are good recent examples of new products we see raising stickiness of customers. A Watch user can answer calls, read and respond to messages, and keep a tab on notifications, but must have an iPhone to use these capabilities. AirPods connect with marked ease to Apple devices but have to be manually re-paired each use if joined to a non-Apple device.

As customers use more point devices, Kerwins believe they are less likely to leave Apple’s ecosystem. And as Apple has found more ways to extract value from its position in charge of this ecosystem, high margin service revenues have increased as a percentage of overall revenue.

Apple’s current share price of around $218 is almost 30% higher than Kerwin’s $170 estimate of Fair Value and the shares have a 2-star Morningstar rating.

2. Alphabet ★★★

Fair Value: $182
Price on July 29: $167
Moat: Wide
Uncertainty: High

Google parent Alphabet (NAS: GOOG) dominates the online search market with 90% global market share and the firm also owns several other valuable assets like YouTube, Maps, Android, Gmail, Chrome and the Google Analytics suite. Google has also leveraged its expertise in private cloud technology and AI to expand into the public cloud business.

Morningstar’s Michael Hodel assigns Alphabet a wide moat rating. This stems from intangible assets related to its significant expertise in search algorithms and AI, as well as network effects from Google’s ecosystem of products and services. Services like Search, YouTube, Chrome and Maps generate masses of data that improve future experiences for users through better results and allow advertisers to deliver closely targeted ads.

While Microsoft’s Bing is attempting to dethrone Google Search with AI technology from OpenAI, Hodel thinks Google can defend its dominance with its own AI technology, some of which OpenAI’s products are based on. He also expects Google to gain a foothold in the growing enterprise cloud market, behind only AWS and Microsoft’s Azure.

Elsewhere, most of Alphabet’s more futuristic projects are not yet generating meaningful revenue. But the upside could be attractive if they succeed because the firm is targeting newer and large markets. Alphabet’s autonomous car technology business Waymo and health research company Verily are good examples.

At current levels of around $169, Alphabet trades slightly below Hodel’s Fair Value estimate of $182 and has a 3 star Morningstar rating.

1. Microsoft ★★★

Fair Value: $435
Price on July 29: $425
Moat: Wide
Uncertainty: Medium

Microsoft (NAS: MSFT) and its technology touch most of our lives every day.

While this is probably most true for its Productivity and Business Processes segment (which includes Office365 and LinkedIn), we view Microsoft’s Intelligent Cloud segment as the company’s core driver at present.

This is because this business is home to Azure, OpenAI integrations and other tools that underpin the firm’s position as a leading provider of outsourced IT infrastructure. The outloko for this business looks bright as companies continue to invest in cloud infrastructure in order to take advantage of AI technology applications.

Dan Romanoff thinks Microsoft has a Wide Moat stemming primarily from switching costs. It is hard to imagine any business enterprise putting up with the business disruption risk and re-training time involved in a move away from Office365. And as we saw with AWS, switching providers of essential IT infrastructure is unattractive for similar reasons.

Romanoff also assigns a narrow moat to Microsoft’s ‘More Personal Computing’ segment which includes Windows, Gaming and Devices including Microsoft Services. This largely stems from the high switching costs of Windows software and strong IP in the gaming business after the Activision purchase.

Microsoft’s current share price of $426 is roughly in line with our Fair Value estimate of $435. The shares currently have a 3 star Morningstar rating.

Closing thoughts on the top ten

There were a few surprises early on in the list but the top four were pretty much exactly as you’d expect. Two things stood out for the top ten as a whole.

Number one, Morningstar Investor subscribers seem to love big moats. Apart from Tesla, every company on the list has a Wide Moat rating, which means our analysts think they can earn excess returns on investments for at least 20 years. You can learn more about spotting companies with moats here.

Number two, the stocks don’t seem especially cheap. Only Alibaba, the black sheep in this line-up, currently trades at a meaningful discount to our analyst’s estimate of Fair Value. For three wide moat stocks that did trade at a sizeable discount to Morningstar’s opinion of Fair Value at the end of July, you can read this article here.

Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company's future cash flows, resulting from our analysts' independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.

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