Finding quality stocks trading at a cheap price can be a challenging and time-consuming task. You not only need to identify whether a company has a tangible edge over its peers. You also need to assess whether a stock is over- or under-valued.

The Global Best Ideas list (available for Morningstar Investor subscribers) is compiled by Morningstar’s equity analysts every month. To earn a spot on the list, these stocks have high analyst conviction in their future prospects and are trading at a price significantly below what our analysts calculate them to be worth.

Buying stocks when they are undervalued gives investor’s a higher margin of safety, therefore reducing the risk of an uncertain future.

Additionally, analysts consider the stock’s moat rating. This rating is an indication of the analyst’s expectations for the company to maintain a sustainable competitive advantage. A wide moat rating is awarded to companies that are expected to maintain and grow their earnings for at least the next 20 years, a narrow moat for the next 10 years.

Brian Han, Director of Equity Research, says of the list “These Best Ideas are sourced from all main sectors of the market, to provide a diversity of names across the spectrum. The last thing investors want is a Best Ideas list chock-full of cheap mining stocks when commodity prices tank, or a litany of oversold retail stocks when consumer sentiment slumps.”

The March monthly list has seen the addition of domestic stocks Bapcor (ASX: BAP) and PEXA (ASX: PXA) the removal of Westpac (ASX: WBC), WiseTech (ASX: WTC) and Kogan (ASX: KGN) from last month’s list.

Added: Bapcor Ltd

We add narrow-moat Bapcor (ASX:BAP) to our Best Ideas List. Shares screen materially undervalued amid both short-term headwinds and structural changes facing the automotive industry. A slowdown in discretionary spending weighs on retail in the near term, new management still needs to prove itself, and the proliferation of electric vehicles, or EVs, is a long-term obstacle for the trade business.

However, we think near-term pessimism overlooks fundamental resilience in automotive spare parts, and Bapcor is likely to successfully adapt to the gradual technological transition.

Added: PEXA Group Ltd

PEXA's (ASX:PXA) Australian exchange business is showing potential for exceptional margins and profits, in line with other financial exchange businesses. Moreover, this is despite suppressed revenue from a subdued property market and elevated costs as the company develops and rolls out its exchange infrastructure across additional regions and use cases.

We believe the market is overly focused on the loss-making UK business and expect it to either become profitable or be abandoned in the next years.

Removed: Ltd

We remove no-moat Kogan (ASX:KGN) from our Best Ideas List. While shares trade at a discount to our valuation, we think there are more compelling opportunities after the shares have increased by slightly more than 100% in the past year.

Despite encouraging improvements in operating earnings, and a meaningful lift in the share prices from lows in July 2022, the market still appears cautious about Kogan’s long-term sales growth potential. But we think it will be underpinned by a structural shift to e-commerce.

Removed: Westpac Banking Corp

After rising approximately 25% in the last three months the shares now trade in 3-star territory. We believe that our view that wide-moat Westpac (ASX:WBC) can hold market share in home loans and achieve cost-savings is being recognised by the market.

Despite intense competition, we expect margins to benefit from a large customer deposit funding base. Westpac is Australia’s second-largest lender, number two in mortgages, and number three in business loans. Funding cost advantages should allow the bank to reprice loans and generate better margins as smaller banks struggle to make a decent return on equity given higher wholesale funding costs. Market share has stabilised in recent months, supporting our confidence there are no serious loan approval issues. Westpac has surplus capital, is well-provisioned, and pays generous fully franked dividends.

Removed: WiseTech Global Ltd

Narrow-moat WiseTech (ASX:WTC) is a well-managed, high-quality company with a large and highly winnable market opportunity in our view. We believe it is a Kingmaker in its industry, meaning its products greatly influence if industry players succeed or fail.

However, this view, and the implied pricing power it brings, is becoming better understood by the market now that WiseTech is directly addressing this point in market presentation. Our forecasts for the business have not changed, but with the share price up over 40% in the last three months and now close to our fair value estimate, the shares no longer screen as sufficiently attractively priced to warrant inclusion on our best ideas list.

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