Share price pullbacks can present an opportunity to buy high quality companies at attractive prices.

Companies with durable competitive advantages are more likely to compound in value over long stretches of time. This is because this advantage or moat protects their profits and returns on investment from competition.

Shares in businesses of this quality usually trade at a premium price. The only real chance investors will have to buy shares at lower valuations is when some kind of problem – real or perceived – arises and investors sell the shares.

‘Buying the dip’ can prove beneficial if the problem turns out to be temporary and the business recovers. If the problem turns out to be permanent, though, the purchase could end up proving too expensive. The challenge, then, is figuring out whether it is a temporary or permanent issue.

The three stocks covered in this article have all been assigned Wide Moat ratings. This means our analysts think they have structural advantages enabling them to earn excess returns on capital for at least 20 years.

All three companies have had a tough time of it recently in the stock market. But in all three cases, our analysts think that the shares have now fallen to a level significantly below Fair Value. As a result, their weak share prices could provide an attractive ‘buy the dip’ opportunity for long-term investors.

Before we start, I would like to remind you that buying any investment should only follow the construction of a deliberate investment strategy. You can find a step-by-step guide to forming a strategy here. You can also find an explanation of terms like Moat, Fair Value and Star Rating at the foot of this article.

Now, onto the shares.

Novo Nordisk (NYS: NVO)

  • Moat rating: Wide
  • Fair Value estimate: USD 89 per US ADR
  • Share price April 17: USD 58
  • Star rating: ★★★★

Novo Nordisk made its name as one of the world’s three biggest suppliers of insulin. The Novo story in recent years, however, has been dominated by GLP-1s – the diabetes treatment turned weight loss phenomenon.

Novo’s current horse in this race, semglitude, is marketed under the brand name Ozempic for diabetes patients and Wegovy for weight loss. With over 100 million obese people in America alone – plus several other potential uses for the drug – investors became incredibly excited.

This led to a near quadrupling in Novo’s share price between 2021 and June 2024, a move that briefly turned Novo into Europe’s largest public company by market value. Over the past ten months, though, Novo shares have fallen to levels not seen since late 2022.

There are a few reasons for this. Zepbound, a drug marketed by Eli Lilly has shown better results than Wegovy in tests. Meanwhile, Novo’s next-gen GLP-1 candidate turned in slightly disappointing results, stoking concerns over Novo’s early lead in this huge market.

Our analyst Karen Andersen thinks that demand for GLP-1s will be so strong that Novo can record exceptional growth even if some ground is ceded to Lilly. She thinks the category can grow by over 40% in 2025, with Novo increasing its GLP-1 sales by 30% this year.

Taken alongside solid demand drivers for diabetes treatments and global insulin demand, Andersen thinks that Novo is well placed to deliver annual revenue and earnings growth at a mid-teens clip over the next five years.

At a recent price of around USD 58, the US-listed Novo Nordisk ADRs traded around 35% below Andersen’s estimate of Fair Value. Her Wide Moat rating for the company is underpinned by its proven ability to refresh its patent protected portfolio through research and development.

Microsoft (NAS: MSFT)

  • Moat rating: Wide
  • Fair Value estimate: USD 490
  • Share price April 17: USD 359
  • Star rating: ★★★★

Microsoft’s most visible products, from Windows to the Office365 suite and LinkedIn, need little in the way of introduction. They are used daily by hundreds of millions of workers, enjoy quasi monopolies, and serve as cash cows that fund growth for Microsoft in other areas.

The most important of these growth drivers according to our analyst Dan Romanoff is Azure, Microsoft’s cloud solutions business. Azure’s annual revenue surpassed the $100 billion mark in fiscal 2024, and Romanoff thinks it still has plenty of runway ahead.

More importantly, Azure also appears to have several advantages when it comes to helping enterprises migrate some of their on-premise workloads to the cloud. Especially important here is Microsoft’s huge base of existing on-premise customers, for whom Azure presumably offers the most convenient option.

Combine these potential advantages in customer acquisition with the pain and potential risk of switching workloads to a different cloud infrastructure provider, and you get what looks like a solid competitive advantage around Microsoft’s Azure business. In addition to the switching costs, network effects and near ubiquity of its Office software products.

Romanoff thinks that Microsoft can rack up annual sales growth of 13% over the next five years, driven mainly by growth in Azure and customers taking upsell options within Microsoft’s dominant Office365 product suite. Microsoft shares have shed around 20% of their value since late January and now trade roughly 25% below Romanoff’s Fair Value estimate.

Alphabet (NAS: GOOGL)

  • Moat rating: Wide
  • Fair Value estimate: USD 237
  • Share price April 17: USD 147
  • Star rating: ★★★★★

Like Microsoft, Alphabet shares have endured a weak few months and are down almost 30% since February. Our analyst Ahmed Khan thinks this belies the “conglomerate of stellar businesses” under Alphabet’s ownership and the strong competitive positions they enjoy.

Google’s search engine business, which uses the vast amounts of data it generates to continuously improve both search results and the targeting of adverts, remains the jewel in the crown.

Khan thinks it is still hard to overstate the dominance of this business. This is true, he says, even in the presence of potential threats like AI search and Tik-Tok, which may offer an alternative in some use cases but are by no means pure substitutes.

The prospect of antitrust regulation breaking Google’s search dominance, for example by banning payments to device makers that make it their default search option, don’t seem to faze Ahamed much either. Most PC users, for example, still install Google Chrome or Google Search by their own volition so that they can use Google over Bing.

Outside of search, Google also owns YouTube, the Android operating system present in over two-thirds of the world’s smartphones, and Google Cloud - the world’s third largest public cloud platform business behind Microsoft’s Azure and Amazon Web Services.

Khan thinks that all three segments benefit from Wide Moats, but he is clear on which segment he expects to drive most of Alphabet’s growth in the coming years. This honour falls to Google Cloud, which Khan thinks can grow at 26% per year and comprise 25% of overall sales within five years.

Taken alongside mid-to-high single digit revenue growth in Google Search and low double-digit growth at YouTube, Khan thinks Alphabet can grow overall sales at a 10% annual clip for the next five years. He thinks the shares are worth $237 per share versus today’s price of roughly USD 147.

Don’t forget

Before you get to choosing investments, we recommend you form a deliberate investing strategy. You can read more about how to form your strategy here.

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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.