Morningstar Advisor - Summer 2008 - 86

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 highquality 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. 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 estimate, we award it 4 or 5 stars. The wider the discount, the higher the star rating, and vice versa. There were 124 stocks that fit that profile as of June 30, 2008, 22 more than made the list March 31, 2008, and almost double the number on the list on Sept. 30, 2007, when only 69 firms made the list. Financial markets were roiled in the second quarter of 2008, as the economy continued to slog through the worst credit crisis in nearly a generation and tried to acclimate to skyrocketing energy prices without yet showing an official contraction that is the hallmark of recession. After an initial surge and subsequent plunge, the Morningstar U.S. Market Index was registering a 1.7% drop for the trailing 13 weeks through June 27 and was down nearly 11% for the year to date. Among the industries, coal, oil and gas services, mining, and steel/iron led the way; the worst-performing industries were mostly financial- and housing-related. Each of Morningstar’s 12 stock sectors still appears to be undervalued on a median basis, and as this list shows, there’s an abundance of stocks with sustainable competitive advantages available at a discount to our estimates of their fair value. 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 Advisory Board Company ABCO AllianceBernstein Holding L.P. AB Allied Irish Banks ADR AIB Altria Group Inc. MO American Beverage Company ADR ABV American Express Company AXP Amgen, Inc. AMGN Apollo Group, Inc. A APOL Applied Materials AMAT ARM Holdings PLC ADR ARMH Autodesk, Inc. ADSK Automatic Data Processing ADP Avon Products AVP Bank of America Corporation BAC Bank of Montreal BMO Bank of New York Mellon Corporation BK Bank of Nova Scotia BNS Barclays PLC ADR BCS Berkshire Hathaway Inc. B BRK.B Biogen Idec, Inc. BIIB Blackrock, Inc. BLK Boardwalk Pipeline Partners LP BWP Boston Scientific, Inc. BSX Buckeye GP Holdings L.P. Trust Unit BGH Buckeye Partners, L.P. BPL Cadbury PLC ADR CBY Diversified Drugs Consultants Money Management International Banks Tobacco Alcoholic Drinks Finance Biotechnology Education Semiconductor Equipment Semiconductors Business Applications Data Processing Household & Personal Products International Banks International Banks International Banks International Banks International Banks Insurance (General) Biotechnology Money Management Pipelines Medical Equipment Pipelines Pipelines Food Mfg. 48,230 83,708 700 4,639 13,661 41,719 36,964 45,896 53,172 8,683 25,482 2,218 7,536 21,825 14,971 100,366 20,391 41,749 44,516 36,676 183,625 17,101 19,803 2,782 18,569 629 2,030 26,142 5.13 2.46 1.72 4.24 4.33 4.48 4.58 3.34 2.92 2.07 1.03 0.08 1.54 2.24 1.30 2.37 4.11 2.23 4.01 2.67 248.85 2.15 7.87 1.87 –0.20 0.81 3.02 0.77 13.35 22.03 23.47 12.52 4.33 4.64 20.96 11.90 16.72 26.46 18.25 30.67 21.83 19.84 26.95 9.51 10.10 15.08 11.45 4.22 15.87 27.17 21.37 12.02 –62.11 27.47 13.99 32.36 6.92 9.61 15.63 23.59 14.53 8.71 17.84 12.95 11.87 14.81 6.70 19.23 20.58 11.84 8.66 10.69 — 26.85 7.62 17.69 16.71 12.77 88.33 34.63 14.11 17.09 17.09 9.86 — 3.89 12.13 21.14 17.32 — 29.15 7.83 15.93 — 15.44 0.00 17.77 20.02 –11.91 –3.66 –2.39 3.61 12.45 10.23 21.61 205.20 51.40 — — — 3.28 –9.26 2.86 2.46 — 8.01 7.97 12.75 3.43 1.67 — — 1.28 1.25 — 2.61 2.19 11.36 6.76 2.63 3.06 12.09 — — 1.73 8.07 — 4.95 7.92 0.82 29.88 21.39 24.57 — 21.15 201.57 15.35 34.28 16.72 59.40 18.94 6.90 32.37 21.77 64.92 7.63 13.76 8.26 23.41 17.43 9.68 12.11 8.82 — –1.90 — — 10.32 70 93 93 93 86 Morningstar Advisor Summer 2008
Morningstar Advisor - Summer 2008

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