Morningstar Advisor - Spring 2008 - 89

By the Numbers: Stocks Undervalued Stocks with Wide Moats Undervalued stocks with significant competitive advantages can make attractive long-term holdings. With that in mind, we scoured our 2,000-plus stock coverage universe for high-quality stocks (those boasting wide economic moats) that are trading on the cheap (rated 4 or 5 stars by our analysts). Our analysts award wide economic moats to companies they believe possess durable competitive advantages that are likely to confer economic profits well into the future. Barriers to entry, switching costs, scale advantages, and patent protection are examples of such advantages. In addition, our analysts estimate the fair value of each stock based on in-depth fundamental analysis. When a stock trades at a suitably wide discount to our fair-value estimate, we award it 4 or 5 stars. The wider the discount, the higher the star rating, and vice versa. There were 102 stocks that fit that profile as of March 31, 2008, one more than made the list Dec. 31, 2007. Just six months ago, on Sept. 30, 2007, only 69 companies qualified. The financial markets struggled in the first quarter of 2008 with the continuing credit crisis that appears to be the worst since the savings and loan debacle of the early 1990s. In the face of the credit contraction, a slower economy, and declining corporate profits, the Morningstar US Market Index finished the quarter down 9.48%. The market hasn’t looked this cheap to us since October 2002. Each of Morningstar’s 12 stock sectors appear undervalued on a median basis. None of this means stocks can’t fall further, but we think it’s a better time to be shopping for stocks—especially companies with strong competitive advantages—today now that prices have come down. Name Industry Market Cap ($Mil) EPS TTM P/E Ratio (trailing) Revenue Growth % 3 Yr EPS Growth % 3 Yr Dividend Yield % Current ROE % (trailing) Pg# 3M Company MMM Abbott Laboratories ABT Allied Irish Banks ADR AIB American Express Company AXP Amgen, Inc. AMGN Anheuser-Busch Companies, Inc. BUD Apollo Group, Inc. A APOL Applied Materials AMAT ARM Holdings PLC ADR ARMHY AstraZeneca PLC ADR AZN Autodesk, Inc. ADSK Automatic Data Processing ADP Bank of America Corporation BAC Bank of Montreal BMO Bank of Montreal BMO Bank of Nova Scotia BNS Bank of Nova Scotia BNS Barclays PLC ADR BCS Berkshire Hathaway Inc. B BRK.B Boston Scientific, Inc. BSX British Sky Broadcasting Group ADR BSY Buckeye GP Holdings L.P. Trust Unit BGH Cadbury Schweppes PLC ADR CSG Campbell Soup Company CPB Central North Airport Group ADR OMAB CI Financial Income Fund CIX.UN Cintas Corporation CTAS Cisco Systems, Inc. CSCO Diversified Drugs International Banks Finance Biotechnology Alcoholic Drinks Education Semiconductor Equipment Semiconductors Drugs Business Applications Data Processing International Banks International Banks International Banks International Banks International Banks International Banks Insurance (General) Medical Equipment Cable TV Pipelines Food Mfg. Food Mfg. Air Transport Money Management Business Support Data Networking 57,257 83,934 20,894 54,554 46,170 34,670 7,404 28,471 2,599 58,878 7,630 22,902 179,022 22,974 23,253 46,352 45,788 65,167 202,989 20,281 19,982 665 23,663 13,081 1,150 6,418 4,609 148,786 5.60 2.31 4.89 3.36 2.82 2.79 1.98 1.10 0.10 14.92 1.47 2.14 3.30 4.11 4.11 3.55 3.55 2.67 284.65 -0.33 1.13 0.81 2.24 2.13 9.16 1.08 2.09 1.29 14.45 23.53 6.30 13.76 15.06 17.39 22.22 18.73 27.78 2.71 22.52 22.03 12.21 11.43 11.35 13.19 13.28 7.55 15.34 -41.15 20.41 28.99 22.62 16.18 26.53 21.23 14.35 19.34 6.92 9.61 11.13 12.95 11.87 3.77 14.81 6.70 27.15 11.32 20.58 11.84 10.69 0.00 0.00 3.93 3.93 17.69 16.71 14.11 7.57 17.09 4.86 — 11.90 31.94 9.62 16.57 — 3.89 47.71 7.83 15.93 2.12 — 15.44 35.02 89.86 17.77 20.02 -3.65 -2.39 -2.39 14.90 14.90 10.23 21.61 — 19.32 — 45.63 11.22 34.52 51.60 10.72 23.58 2.40 2.39 4.97 1.35 — 2.65 — 1.17 1.30 1.29 — 2.37 6.15 5.80 5.92 3.93 3.90 6.73 — — 2.83 4.43 2.61 2.44 2.32 7.94 1.53 — 37.74 22.66 29.14 37.25 17.19 59.67 38.67 21.04 7.38 37.41 30.37 22.64 10.90 14.04 14.04 22.07 22.07 20.11 11.53 -3.26 594.05 — 34.66 51.54 6.03 20.48 15.41 24.59 19 18 13 19 53 18 16 18 MorningstarAdvisor.com 89
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Morningstar Advisor - Spring 2008

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