According to Morningstar, the top 15 wealth-creating stocks generated an estimated $20.8 trillion in shareholder wealth over the 10 years from 2015 through 2024, while the top 15 wealth-destroying stocks wiped out an estimated $370.9 billion in shareholder wealth over the same time period.
In a pair of recent posts (Feb. 18 and Feb. 25), Morningstar portfolio strategist Amy C. Arnott, CFA, sifted through the company’s database to determine which stocks have created and destroyed the most value in dollar terms over the past 10 years.
The so-called “Magnificent Seven” group of large-cap tech stocks generated about three-quarters of the total among the top 15 wealth-creating stocks, with $16.1 trillion in shareholder value created by these seven companies over the 10-year period. The top three stocks on the list (see first chart) include Nvidia (NVDA), Apple (AAPL), and Microsoft (MFST)—all part of the Magnificent Seven along with Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META) and Tesla (TSLA).
“From a sector perspective, technology-related stocks dominate the list,” Arnott wrote in her Feb. 18 post. “That shouldn’t come as a surprise, given that tech stocks have generated excess returns of more than 8 percentage points versus the broader market over the past 10 years.”
Arnott noted that other sectors, including consumer cyclical, financial services and healthcare also show up in the top 15. Notably absent are old-economy sectors, such as utilities, basic materials, industrials, and real estate.
The article advised investors thinking about a new purchase in the 15 companies on the wealth-creating stocks list to first consider whether the stock price offers a margin of safety. Currently, Alphabet, Microsoft, and UnitedHealth (UNH) are trading at discounts to Morningstar’s fair value estimates and garner Morningstar Ratings of 4 stars.
Four of the 15 have ratings of 3 stars, indicating that they’re neither significantly undervalued nor overvalued based on Morningstar analyst assessments, Arnott wrote. “Six others—Apple, Broadcom (AVGO), Eli Lilly (LLY), Mastercard (MA), Tesla, and Visa (V)—are currently trading above our estimates of their fair value, earning them 2-star ratings,” Arnott said. “Finally, JPMorgan Chase (JPM) and Walmart (WMT) are both trading at significant premiums to our fair value estimates. Depending on their tax circumstances and other factors, investors may want to consider selling.”
Wealth-destroyers list
As mentioned earlier, the top 15 wealth-destroying stocks wiped out an estimated $370.9 billion in shareholder wealth over the 10 years from 2015-2024 despite a generally bullish market, according to Arnott’s post today. The three stocks that have eroded the most wealth are Biogen (BIIB), Walgreens (WBA), and Schlumberger (SLB) (see chart below).
Many of the companies on the wealth-destroyers list are large-cap stocks that once dominated their industries. Semiconductor chipmaker Intel (INTC), for example, previously dominated the technology sector but lost an estimated $21.7 billion in shareholder value over the past decade amid increased competition, Arnott wrote.
To create the list, Arnott sorted through Morningstar’s US equity database to find companies with the largest drops in market capitalization, which reflects the current stock price multiplied by total shares outstanding, over the same period. To get a more accurate picture of value destruction, she added back the total value of dividends paid and stock spinoffs, which partially offset the market-cap declines.
While Arnott said the estimated $370.9 billion in shareholder wealth wiped out by the 15 companies on the list over the past 10 years is a big number, she added that it is far less than the estimated $20.8 trillion in wealth created by the top 15 stocks on the positive side.
This, she said, reflects a few different factors. “First, companies with outstanding financial results and share-price performance can continue to outshine their competitors over many years. While it’s impossible to lose more than 100% of your initial investment in a stock (unless you’re wading into risky territory like derivatives and leverage), winning stocks can have upside potential well in excess of their initial value,” Arnott wrote. “Second, the odds of experiencing a loss in any individual stock are relatively high, but value destruction can be somewhat limited if a stock never reached a large market cap to begin with.”
Arnott notes that many companies on the “wealth-destroyers” list have a common thread: a lack of economic moat, or sustainable competitive advantage. Eleven of the companies on the list have no economic moat, and another three—Biogen, CVS Health (CVS), and Schlumberger—have narrow economic moats. Only one company on the list—biotech drugmaker Gilead Sciences (GILD)—currently has a Morningstar Economic Moat Rating of wide.
“Moats were much more prevalent on my list of wealth creators, with 12 of the 15 garnering wide economic moat ratings based on our analysts’ assessments,” Arnott wrote.
In her article, Arnott goes on to dig into issues that likely led to the companies’ falloffs. She also notes that six of the 15 stocks on the list have Morningstar Ratings of 3 stars, indicating that they’re neither significantly undervalued nor overvalued based on Morningstar analyst assessments.
“Eight others—Biogen, CVS Health, Macy’s (M), NOV Inc. (NOV), Paramount Global (PARA), Perrigo (PRGO), Schlumberger, and Walgreens—are currently trading at modest discounts to our estimates of their value, earning them 4-star ratings,” Arnott wrote. “Under Armour (UA) is trading at a more significant discount and earned a 5-star rating as of this writing.”
SEE ALSO:
• Morningstar Launches PitchBook Buyout Replication Index
• Morningstar Partners with SS&C Technologies
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
