Three Value Stocks for a Patient Portfolio: Assessing Moats, Valuation, and Long-Term Compounding

The market's recent performance has been a story of concentrated strength. In the latest quarter, the S&P 500 climbed 2.7%, but the gains were heavily skewed toward a small group of large-cap, technology-oriented companies. This dynamic, where a handful of stocks drive the broad indices, often leaves behind a broader swath of the market that has not participated in the rally. For a value investor, this divergence creates a fertile hunting ground. It suggests that the market's optimism is focused on a narrow set of narratives, potentially overlooking the steady, durable businesses that form the backbone of the economy.

This is the context that favors a value approach. When the market's attention is laser-focused on the next AI breakthrough or cloud infrastructure play, it can easily discount the long-term compounding power of companies with a wide economic moat. As Warren Buffett famously described, a wide moat is a durable competitive advantage-a fortress that protects a company from rivals. This could be unassailable brand strength, a cost leadership position, or regulatory barriers that create high entry costs for competitors. The key is sustainability. A wide-moat business can command premium prices, maintain stable profit margins, and reinvest its cash flows to grow its fortress, year after year. These are the companies that deliver steady returns through economic cycles, a quality that becomes more valuable when market volatility is high.

The Morningstar Wide Moat Focus Index provides a systematic way to find these companies. It tracks firms with Morningstar Economic Moat Ratings of "wide" that are also trading at the lowest current market prices relative to the firm's fair value estimates. In other words, it's a list of high-quality businesses that the market may be undervaluing. The index's constituents are a fertile hunting ground for long-term investors, as they combine sound balance sheets with significant competitive advantages. Our thesis is simple: within this group, three companies-Campbell's, Bristol-Myers Squibb, and Constellation Brands-present potential opportunities. If their current valuations reflect a discount to their intrinsic value and their moats remain intact, they could offer a patient portfolio a chance to compound capital through the next market cycle.

Case 1: Campbell's Soup (CPB) - A Challenged Moat at a Discount?

Campbell's presents a classic value puzzle. The company possesses a wide economic moat, anchored by its portfolio of strong, entrenched brands and deep relationships with retailers. This fortress should, in theory, allow it to command premium prices and generate stable cash flows. Yet the stock's performance tells a different story. Over the past three years, the total shareholder return has been a stark 46.02% loss, a period of fading momentum that has left the share price trading at a significant discount to various fair value estimates.

The valuation gap is clear. One analysis suggests the stock is trading at a 18.2% discount to a calculated fair value of about $32.32. Another model, using a different methodology, implies a potential loss of 63%. While the exact figure depends on the model, the consensus is that the market is pricing in a deep discount. This disconnect between a durable moat and a depressed share price is the core of the investment thesis. The question is whether this reflects a temporary mispricing or a fundamental reassessment of the business's future.

The company has been actively trying to rebuild its moat. It has shifted its portfolio mix away from its traditional soup business and toward snacks, while driving efficiencies across its supply chain to free up capital for brand investment. This strategic pivot is necessary, but it faces structural headwinds. Persistent inflationary pressures and competitive dynamics continue to squeeze margins, and the core volume in soups and snacks remains soft. The market's skepticism is understandable.

Adding a layer of uncertainty is recent insider activity. In late 2025, executive vice president Charles A. Brawley III sold 11,550 shares worth US$325,075. While such sales can be routine, they often sharpen investor focus, especially when paired with a weak share price and declining volume. This move comes as the stock trades near its 52-week low of $25.62, a level that underscores the depth of the current pessimism.

For a patient investor, Campbell's is a bet on management's ability to successfully navigate this transition and restore the compounding power of its wide moat. The current price offers a steep discount, but the path back to intrinsic value will require overcoming real operational challenges. The stock's high dividend yield of 5.9% provides a cushion, but it does not guarantee the principal will be preserved. The setup is one of high risk and potentially high reward, hinging entirely on execution.

Case 2: Bristol-Myers Squibb (BMY) - A Pharmaceutical Moat in Transition

Bristol-Myers Squibb presents a classic pharmaceutical value story. The company possesses a wide economic moat, built on a portfolio of branded drugs and a robust research and development pipeline. This fortress of intellectual property and clinical expertise is the foundation of its predictable cash flows. Historically, the management team has demonstrated a knack for smart capital allocation, consistently returning capital to shareholders through dividends and share buybacks. This disciplined approach has helped maintain financial strength even as the company navigates a complex transition.

The transition is the central challenge. Bristol faces a significant patent cliff, with 47% of total revenue exposed to patent threats through 2028. This looming expiration of blockbuster drugs creates a clear vulnerability that the market is pricing in. Yet the company is not standing idle. Management is betting on newer, faster-growing therapies to soften the impact, supported by promising pipeline programs and a renewed focus on cost discipline. The investment thesis hinges on whether these newer products can successfully replace the lost revenue and maintain the company's compounding trajectory.

Valuation reflects this uncertainty. While not as deeply discounted as some other value picks, the stock offers a yield and stability that appeals to income-focused investors in a volatile market. Morningstar's analysis suggests the stock is significantly undervalued, with a fair value estimate of $66 per share. This implies a margin of safety for a patient investor, provided the company can execute its plan. The key risk is that the patent cliff hits harder or longer than expected, pressuring near-term earnings. But for a long-term holder, the wide moat and proven capital allocation discipline provide a buffer. The setup is one of measured optimism: a high-quality business facing a known headwind, currently priced for a cautious outlook.

Case 3: Constellation Brands (STZ) - A Premium Beverage Moat with a Premium Price

Constellation Brands offers a clear example of a wide economic moat in a consumer staples sector. The company's fortress is built on a portfolio of premium, globally recognized brands, most notably Corona and Modelo. These identities command significant pricing power and customer loyalty, creating a durable advantage that is difficult for competitors to replicate. This moat has historically allowed the company to generate stable cash flows and maintain a strong financial position.

Financially, the stock presents a picture of a quality business trading at a premium valuation. As of early January 2026, Constellation trades at a P/E ratio of 23.18 and offers a dividend yield of 2.77%. This is not a deeply discounted stock; it commands a multiple that reflects its premium brand status and consistent earnings. Yet, the Morningstar Wide Moat Focus Index analysis from late 2025 provides a crucial counterpoint. At that time, Constellation was identified as the most undervalued wide-moat stock in the index, trading a staggering 41% below its fair value estimate.

This tension between current valuation and a recent deep discount is the heart of the investment question. The 41% discount suggests the market was pricing in significant headwinds, perhaps related to competitive pressures in beer or macroeconomic softness. The subsequent recovery in the share price-now trading well above its 52-week low of $126.45 but still far below its 52-week high of $196.91-indicates some of that pessimism has been unwound. The recent earnings beat and analyst optimism for a "solid start" to 2026 show the business can still deliver.

For a patient investor, the setup is one of a wide moat that is being re-rated. The premium price today offers less of a margin of safety than the 41% discount did last year. However, the underlying business remains strong, and the dividend provides a tangible return while waiting for the compounding to resume. The risk is that the premium valuation leaves little room for error if the brand moat faces unexpected challenges. The bottom line is that Constellation is a high-quality business, but the entry point today is more demanding than it was just months ago.

Synthesis and Forward View: Catalysts, Risks, and the Patient Investor's Path

The three companies we've examined-Campbell's, Bristol-Myers Squibb, and Constellation Brands-represent a portfolio of wide-moat businesses trading at a discount to their intrinsic value. The common thread is a market that has priced in significant challenges, leaving a margin of safety for a patient investor. Yet each faces distinct catalysts and risks that will determine whether the discount closes or widens.

The primary catalyst for all three is a shift in market sentiment. The current environment, where a handful of tech stocks drive the indices, creates a fertile ground for a rotation. A sustained economic recovery or a broader market rotation away from expensive growth would likely re-rate these quality, defensive businesses. As noted in the Morningstar analysis, these stocks are on the value side of the style box, with predictable cash flows and strong moats. When the market's focus broadens, that quality becomes more visible, and the discount may narrow. For Constellation, a re-rating is already underway, as its recent earnings beat and analyst optimism suggest the business is compounding. For Campbell's and Bristol-Myers, the catalyst is more about the market recognizing that their challenges are manageable within their durable frameworks.

The key risks, however, are operational and structural. For Campbell's, the risk is a failure to successfully transform its portfolio. The shift from soups to snacks is a strategic necessity, but it faces persistent inflationary headwinds and competitive pressures that continue to squeeze margins. The recent insider sale by an executive adds a layer of uncertainty, sharpening focus on a stock that has seen fading momentum. For Bristol-Myers Squibb, the patent cliff is a known, time-bound risk. The company's ability to replace lost revenue with newer pipeline therapies will be the ultimate test. For Constellation, the risk is that its premium valuation leaves little room for error if its brand moat faces unexpected competitive or macroeconomic headwinds.

For a disciplined investor, the path is one of patience and selective monitoring. A $1,000 allocation to this trio is a bet on long-term compounding, not quarterly results. The investor should watch for evidence that each company is executing its plan: Campbell's on volume recovery and margin stabilization, Bristol-Myers on pipeline progress and cost discipline, and Constellation on brand strength and earnings growth. The dividend yields provide a tangible return while waiting for the business to compound.

The bottom line is that true value realization depends on the business's ability to compound earnings over many years, not on a quick re-rating. As the Morningstar analysis suggests, these are companies with wide moats and a history of smart capital allocation. The current discount offers a chance to buy that quality at a reasonable price. But the investor's patience is the ultimate test. The market may take time to reassess, and the path will likely be bumpy. For those willing to endure the noise, the potential reward is a portfolio built on durable, high-quality businesses.