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8 Undervalued Companies with 'Exponential' Growth Potential

These names stand to significantly benefit from transformative technologies.

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Technology companies aren't the only ones that can profit from technological advances. Nor are startups the only ones harnessing technology to generate significantly positive growth.

Take, for example,  Walmart (WMT). The company used technology to effectively manage inventory for years. More recently, e-commerce has lifted U.S. sales for the retail giant.

The Morningstar Exponential Technologies Index is designed to identify companies across sectors in the early stages of developing or using transformative technologies. It features 200 companies identified by Morningstar's Equity Research team as positioned to experience meaningful economic benefits as a user or producer of promising technologies.

Morningstar has identified nine technology themes. (More on those in a minute.) Analysts score companies within those themes on a scale of 0 (no or little exposure to the theme) to 2 (significant exposure), relying on models to project growth over five, 10, and 20 years. Managers review the scores of 2 and collectively select "leaders" within each theme. Leaders are often beneficiaries of the network effect, boast cost advantages, and maintain powerful brands that block competition. They're also usually gatekeepers with extraordinary influence because of how they define processes and/or control resources. Leaders are expected to have significantly more exposure to a given theme and, as a result, should capture disproportionate economic benefits compared to other firms. Companies can be leaders in more than one theme.

Here's how we define the nine themes, as well as the leader within each theme that's most undervalued as of this writing.

Big Data and Analytics
Capabilities with data sets too large and complex to manipulate or interrogate with standard methods or tools. Related subthemes include the Internet of Things, machine learning, and artificial intelligence.

Most undervalued leader 
Baidu (BIDU)
Economic Moat: Wide
Industry: Internet Content & Information
+/- Price/Fair Value (as of 2/25/19): -36%

Networks and Computer Systems
Technology leaps ranging from hyperconnectivity and integrated systems to service continuity and new software-defined architectures will have a massive impact on the way people think of connecting applications and software with hardware.

Most undervalued leader 
Qualcomm (QCOM)
Economic Moat: Narrow
Industry: Semiconductors
+/- Price/Fair Value (as of 2/25/19): -26%

Nanotechnology
The branch of technology that deals with dimensions and tolerances of less than 100 nanometers, especially the manipulation of individual atoms and molecules. We see a range of potential applications spanning medicine, computing, manufacturing, and travel.

Most undervalued leader 
 Applied Materials (AMAT)  
Economic Moat: Wide
Industry: Semiconductor Equipment & Materials
+/- Price/Fair Value (as of 2/25/19): -20%

Medicine and Neuroscience
Sciences, such as neurochemistry and experimental psychology, that deal with the nervous system and brain. Key advancements in unlocking the human genome have created an infrastructure of biomarkers, while paradigm shifts in biotechnology that can alter the immune system are radically changing the way we treat diseases.

Most undervalued leader 
 Bristol-Myers Squibb (BMY)
Economic Moat: Wide
Industry: Drug Manufacturers - Major
+/- Price/Fair Value (as of 2/25/19): -22%

Energy and Environmental Systems
This involves the exploration of renewable energy sources--including solar, wind, water, and batteries. As organizations set processes to help reduce environmental impacts and increase operating efficiency, new avenues for technological advancement across sectors will open up.

Most undervalued leader 
Sociedad Quimica Y Minera De Chile (SQM)
Economic Moat: Narrow
Industry: Chemicals
+/- Price/Fair Value (as of 2/25/19): -32%

Robotics
The branch of technology that deals with the design, construction, operation, and application of robots. Advances in robotics, specifically when combined with other exponential technologies, have seemingly infinite potential applications, spanning technology, industrial, medical and consumer-facing channels.

Most undervalued leader 
Fanuc (FANUY)
Economic Moat: Wide
Industry: Diversified Industrials
+/- Price/Fair Value (as of 2/25/19): -21%

3-D Printing
A process for making a physical object from a three-dimensional digital model. The emerging trend is ready for mainstream consumption and has ample potential to disrupt several industries, from industrial manufacturing and medicine to consumer products and retail.

Most undervalued leader
 Zimmer Biomet Holdings (ZBH)
Economic Moat: Wide
Industry: Medical Devices
+/- Price/Fair Value (as of 2/25/19): -10%

Bioinformatics
The science of collecting and analyzing complex biological data. The "quantified sell" trend of acquiring data to quantify aspects of an individual's daily life has exponential potential to positively impact both the duration and quality of life.

Most undervalued leader 
Bristol-Myers Squibb
Economic Moat: Wide
Industry: Drug Manufacturers - Major
+/- Price/Fair Value (as of 2/25/19): -22%

Financial Services Innovation
Search for and acknowledgement of nontraditional emerging funding sources, platforms, currency, and stored and transferred value. We not only think about opportunities to efficiently expand production, but also the underlying currencies used (including cryptocurrencies), as well as structural shifts in technology and payment delivery methods.

Most undervalued leader 
 Tencent (TCEHY)
Economic Moat: Wide
Industry: Internet Content & Information
+/- Price/Fair Value (as of 2/25/19): -31%

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Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.