Morningstar - Q3 2021 - 54

Strategies
EXHIBIT 2 (CONTINUED)
Healthcare (continued)
Company
Pfizer PFE
Becton Dickinson BDX
Bio-Rad Laboratories BIO
Bio-Techne TECH
Illumina ILMN
Steris STE
Thermo Fisher Scientific TMO
Fair
Morningstar
Rating
QQQ
QQ
Q
QQ
QQ
West Pharmaceutical Services WST Q
Semiconductors
Intel INTC
Applied Materials AMAT
Price
($)
Value
($)
Price/
Fair
Value
QQQQ 240.22 296.00 0.81
625.85 425.00 1.47
444.43 215.00
2.07
469.13 343.00 1.37
205.58 181.00 1.14
Moat
Probability
of Valuation
Impact
39.05 40.00 0.98 Wide -
Narrow Low
Narrow High
Narrow High
Narrow Low
QQQ 494.02 470.00 1.05 Wide
358.70 215.00
1.67 Wide
Narrow Medium
High
High
Market
Cap
($B)
218.6
69.9
18.4
17.3
68.5
20.5
194.2
26.5
electric vehicles. Other parts suppliers to
the EV market include Aptiv APTV and Lear LEA,
but we think those two companies are
currently overvalued at 2 stars.
gSpecialty chemicals We think 4-star-rated
DuPont DD is well positioned with its portfolio
of specialty chemicals and downstream products
that serve the automotive, electronics, and
communications sectors. DuPont may also see
heightened demand from other areas in the
infrastructure plan, such as the spending initiative
on clean water, which should increase demand
for its water filtration products.
QQQ
Cadence Design Systems CDNS QQ
KLA KLAC
Lam Research LRCX
Synopsys SNPS
Source: Morningstar. Data as of 06/24/2021.
55.26 65.00
QQQ 135.50 125.00
0.85 Wide None
1.08 Wide
Low
133.00 106.00 1.25
QQQ 310.86 315.00 0.99 Wide
QQQ 624.22 600.00
1.04 Wide
QQQ 268.86 242.00 1.11
Narrow Low
Low
Low
Narrow Low
223.1
123.8
37.0
47.6
89.0
41.0
gUtilities This sector has been overlooked but
will be key to charging all these new EVs. With one
of the largest EV charging station programs in
the U.S., Edison International EIX is well positioned.
In addition, the electrification of the U.S. will
benefit American Electric Power AEP, which is one
of the largest owners of electricity transmission
and derives a significant percentage of its revenue
from energy transmission.
uptick from additional remodeling and new
construction. Our repair and remodel forecast
already incorporates elevated home improvement
spending above long-term trends for the
next few years. The heightened demand includes
increased spending from minority households,
which would receive assistance from the
infrastructure plan.
gBuilding materials, high-efficiency HVAC
systems Elevated spending should benefit
Carrier CARR, Johnson Controls JCI, Lennox LII,
and Trane Technologies TT. As with repair and
remodel, we have incorporated some heightened
demand into our current forecasts, resulting
in growth above gross domestic product and
stronger profit margins.
2. Supporting Transition to EVs Will Spur Demand
The infrastructure bill is dedicated to a wide range
of green initiatives, including building out and
supporting the transition to electric vehicles. One
of the initiatives is a tax credit for the purchase of
54
Morningstar Q3 2021
new electric vehicles, including autos, buses, and
trucks. We forecast that by 2030, more than
30% of new-vehicle sales globally will be battery
electric vehicles and approximately 40% will
be hybrids ( EXHIBIT 3 ). But if the infrastructure
plan is enacted as proposed, we expect this
adoption rate will be even higher.
In the short run, the tax credit may primarily
benefit Tesla TSLA, but its first-mover advantage
will soon dwindle as other auto manufacturers roll
out EVs. We expect competition will increase
in this segment from the global automakers that
have outlined EV production goals, which
include Ford F, General Motors GM, Volkswagen
VWAPY, and BMW BMWYY. Of this group,
we see 4-star-rated BMW as the most undervalued.
Specifically, a few groups that will benefit from
increased EV adoption include:
gAutomotive suppliers We see upside for 4-starrated
BorgWarner BWA, which is well
positioned for growth in hybrids and battery
gLithium Increased EV adoption would lead to an
even greater demand for lithium, a crucial
component for the batteries that power these
vehicles. The higher demand would require even
higher-cost lithium supply to come on line,
thus leading to higher pricing. Sociedad Quimica
y Minera SQM has 4 stars and the other two
main producers 3 stars.
3. Healthcare Initiatives to Support the Aged
The infrastructure plan also funds several
healthcare initiatives to provide home- and
community-based care. About $400 billion is slated
to expand access to quality, affordable homeor
community-based care for aging relatives and
people with disabilities. At this point, the
language as to how exactly this money would be
spent is especially nebulous, but we expect
that this spending will include measures to
increase coverage through Medicaid expansion
and subsidies for the exchanges. It also
may include funding for rehabbing extant or
building new senior living centers, long-term-care
facilities, or skilled nursing homes. In addition, it
appears that the intent is to provide greater
at-home care and increase the wages for those

Morningstar - Q3 2021

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Contents
Morningstar - Q3 2021 - Cover1
Morningstar - Q3 2021 - Cover2
Morningstar - Q3 2021 - 1
Morningstar - Q3 2021 - 2
Morningstar - Q3 2021 - Contents
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Morningstar - Q3 2021 - Cover3
Morningstar - Q3 2021 - Cover4
Morningstar - Q3 2021 - M1
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