Morningstar Advisor - February/March 2009 - 72

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 that 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 123 stocks that fit that profile as of Dec. 31, 2008, 15 more than made the list Sept. 30, 2008. Investors were anxious for the year to close on one of the most brutal markets in history, which rendered Wall Street’s landscape nearly unrecognizable. All of Morningstar’s diversified equity indexes declined precipitously during 2008, with the Morningstar U.S. Market Index down 37.03% for the year. Brutal markets often spur good investors to activity. Not uncharacteristically, in an October New York Times opinion piece, Warren Buffett counseled long-term investors to start buying stocks and indicated that he had sold all his U.S. Treasury holdings in favor of stocks in his personal accounts. Similarly, Morningstar stock-coverage universe appears nearly 30% undervalued, with stocks garnering a wide-moat designation appearing even slightly cheaper than that. 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 Adobe Systems Inc. ADBE Aflac, Inc. AFL Alcon, Inc. ACL Allergan, Inc. AGN AllianceBernstein Holding L.P. AB Altria Group Inc. MO American Express Company AXP Amgen, Inc. AMGN Applied Materials AMAT ARM Holdings PLC ADR ARMH AstraZeneca PLC ADR AZN Autodesk, Inc. ADSK Automatic Data Processing ADP Avon Products AVP Bank of America Corporation BAC Bank of New York Mellon Corporation BK Bank of Nova Scotia BNS Berkshire Hathaway Inc. B BRK.B Biogen Idec, Inc. BIIB Boardwalk Pipeline Partners LP BWP Boston Scientific, Inc. BSX British American Tobacco PLC ADR BTI Buckeye GP Holdings L.P. Trust Unit BGH Buckeye Partners, L.P. BPL Cadbury PLC ADR CBY Campbell Soup Company CPB Diversified Drugs Development Tools Insurance (Life) Drugs Drugs Money Management Tobacco Finance Biotechnology Semiconductor Equipment Semiconductors Drugs Business Applications Data Processing Household & Personal Products International Banks International Banks International Banks Insurance (General) Biotechnology Pipelines Medical Equipment Tobacco Pipelines Pipelines Food Mfg. Food Mfg. 41,016 83,103 12,223 21,572 26,990 12,609 1,861 31,318 22,421 62,501 14,179 1,713 58,715 4,680 20,523 10,700 71,902 32,729 26,933 154,597 14,147 3,012 11,832 55,421 377 1,689 19,029 10,935 5.28 2.91 1.51 2.97 6.63 1.91 3.58 3.06 2.82 3.76 0.70 0.16 4.22 1.65 2.33 1.79 1.35 1.63 3.83 168.25 2.62 2.09 -0.07 2.09 0.92 3.78 0.67 3.08 12.66 17.99 15.34 15.58 33.11 19.65 4.92 3.65 8.12 14.77 11.63 27.70 8.99 10.72 17.86 11.78 14.12 16.92 9.13 20.79 16.16 10.59 — 16.34 15.24 11.61 21.83 18.21 6.92 9.61 23.74 5.04 12.68 24.14 23.59 6.17 12.95 11.87 5.15 20.68 11.32 20.58 12.70 8.66 10.69 26.85 7.62 16.71 12.77 34.63 14.11 — 17.09 17.09 9.86 6.34 — 3.89 9.96 10.55 23.31 4.74 21.14 — 7.83 15.93 -1.39 1.21 89.86 17.77 — -11.91 -3.66 3.61 12.45 21.61 205.20 — — — — 3.28 -9.26 20.94 3.38 2.62 — 2.07 2.81 0.48 16.24 15.99 3.72 — 2.25 1.70 4.68 — 2.97 3.19 15.63 3.37 7.01 — — 9.72 — 5.00 6.71 9.81 — 3.81 32.58 26.02 18.63 19.26 49.29 15.48 — 60.13 28.10 22.16 15.43 8.12 39.85 30.83 24.65 92.11 3.80 6.65 23.41 6.52 14.45 — -0.64 31.93 — — 9.88 89.17 38 63 39 72 Morningstar Advisor February/March 2009
Morningstar Advisor - February/March 2009

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