Morningstar Advisor - June/July 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 101 stocks that fit that profile as of April 30, 2009, 39 fewer than made the list Feb. 28, 2008. Morningstar analysts don’t have very rosy expectations for 2009 underneath their fair value estimates, expecting only about one fourth of the 2,000-plus firms in Morningstar’s coverage universe to report higher revenue growth in 2009 versus 2008, down even further from the one third of firms that achieved higher revenue growth in 2008 versus 2007. In turn, the projections imply a further decline in the median operating profit margin in 2009. Further down the road, analysts are expecting three fourths of the companies to have higher revenue growth in 2010 than in 2009, and they project about 80% of companies to report higher operating income in 2010 than they did in 2009. Looking at individual industries, earnings expectations for 2009 are quite mixed. But a coherent story emerges from the bottom-up approach of Morningstar’s analysts. They are looking for a further decline in operating income in a majority of the 28 industry sectors that are especially sensitive to overall economic conditions. But the analysts expect a recovery in earnings in a variety of industries linked to consumer discretionary spending, including manufacturers, retailers, and service providers. Morningstar is still monitoring current conditions closely, but it looks like consumers may lead the way out. These are near-term earnings expectations, not stock valuations, and some of the most attractive valuations are in sectors that were hardest hit by the recession—even in sectors where analysts aren’t expecting a rebound in earnings this year. 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 Alcon, Inc. ACL Allergan, Inc. AGN Altria Group Inc. MO American Express Company AXP Amgen, Inc. AMGN Apollo Group, Inc. A APOL Applied Materials AMAT AstraZeneca PLC ADR AZN Autodesk, Inc. ADSK Automatic Data Processing ADP Avon Products AVP Berkshire Hathaway Inc. B BRK.B Biogen Idec, Inc. BIIB Boardwalk Pipeline Partners LP BWP Boston Scientific, Inc. BSX Bristol-Myers Squibb Company BMY British American Tobacco PLC ADR BTI Buckeye GP Holdings L.P. BGH Cadbury PLC ADR CBY Diversified Drugs Consultants Drugs Drugs Tobacco Finance Biotechnology Education Semiconductor Equipment Drugs Business Applications Data Processing Household & Personal Products Insurance (General) Biotechnology Pipelines Medical Equipment Drugs Tobacco Pipelines Food Mfg. 40,573 67,580 269 28,882 14,341 34,299 31,034 49,620 9,497 16,471 51,425 4,628 18,014 9,840 144,482 13,398 3,764 12,949 38,984 48,973 505 10,665 4.26 3.12 1.52 6.79 1.89 2.36 2.33 3.90 4.17 0.42 4.22 0.80 2.38 2.04 107.36 2.95 1.80 -1.36 2.65 2.28 0.94 0.90 10.16 15.75 10.91 13.72 25.25 10.82 5.49 12.69 24.81 25.84 8.45 21.01 14.99 9.43 26.25 19.76 12.44 — 13.79 14.08 17.09 20.83 6.08 9.75 15.63 12.94 23.41 -38.60 5.63 6.47 11.74 5.15 11.32 14.63 12.70 9.47 9.69 19.15 11.88 8.61 2.36 — 66.83 -5.76 5.88 13.04 12.13 31.59 7.89 -22.09 -7.77 10.00 7.66 -1.39 89.86 -16.01 — 4.07 -16.50 77.98 — — 20.05 — — -15.08 3.44 3.38 — 2.62 0.42 7.53 2.71 — — 1.94 5.77 — 3.48 3.51 — — 9.02 — 6.30 5.38 7.07 2.04 32.00 27.69 20.84 53.67 14.93 46.11 23.60 21.94 54.35 7.63 39.85 14.45 24.45 126.26 4.34 13.81 -14.40 46.02 35.20 — 9.88 58 49 49 72 Morningstar Advisor June/July 2009

Morningstar Advisor - June/July 2009

Table of Contents for the Digital Edition of Morningstar Advisor - June/July 2009

Morningstar Advisr - June/July 2009
Contents
New on MorningstarAdvisor.com
Letter from the Editor
Contributors
Is SRI a Relevant Investment Strategy?
A Head for Numbers
Building a Business on SRI
Investment Briefs
The Liquidity Premium
Navigating the SRI Patchwork
Profit and Progress
How the Fed Contributes to Crises
Holding Steady
Appleseed Adds Value to SRI Formula
Four Picks for the Present
Long-Term Investors Can Find Value among Industrials
Higher Yields, Hold the Risk
Bargains in U.S. Industrials
Mutual Fund Analyst Picks
50 Most Popular Equity ETFs
Undervalued Stocks
Most Popular Variable Annuities
New at Morningstar
Talkin’ ‘bout a Revolution
Morningstar Advisor - June/July 2009 - 47
Morningstar Advisor - June/July 2009 - Morningstar Advisr - June/July 2009
Morningstar Advisor - June/July 2009 - Cover2
Morningstar Advisor - June/July 2009 - Contents
Morningstar Advisor - June/July 2009 - 2
Morningstar Advisor - June/July 2009 - 3
Morningstar Advisor - June/July 2009 - New on MorningstarAdvisor.com
Morningstar Advisor - June/July 2009 - 5
Morningstar Advisor - June/July 2009 - 6
Morningstar Advisor - June/July 2009 - Letter from the Editor
Morningstar Advisor - June/July 2009 - Contributors
Morningstar Advisor - June/July 2009 - 9
Morningstar Advisor - June/July 2009 - Is SRI a Relevant Investment Strategy?
Morningstar Advisor - June/July 2009 - 11
Morningstar Advisor - June/July 2009 - A Head for Numbers
Morningstar Advisor - June/July 2009 - 13
Morningstar Advisor - June/July 2009 - 14
Morningstar Advisor - June/July 2009 - Building a Business on SRI
Morningstar Advisor - June/July 2009 - 16
Morningstar Advisor - June/July 2009 - 17
Morningstar Advisor - June/July 2009 - Investment Briefs
Morningstar Advisor - June/July 2009 - 19
Morningstar Advisor - June/July 2009 - 20
Morningstar Advisor - June/July 2009 - 21
Morningstar Advisor - June/July 2009 - 22
Morningstar Advisor - June/July 2009 - The Liquidity Premium
Morningstar Advisor - June/July 2009 - 24
Morningstar Advisor - June/July 2009 - 25
Morningstar Advisor - June/July 2009 - 26
Morningstar Advisor - June/July 2009 - 27
Morningstar Advisor - June/July 2009 - 28
Morningstar Advisor - June/July 2009 - 29
Morningstar Advisor - June/July 2009 - Navigating the SRI Patchwork
Morningstar Advisor - June/July 2009 - 31
Morningstar Advisor - June/July 2009 - 32
Morningstar Advisor - June/July 2009 - 33
Morningstar Advisor - June/July 2009 - 34
Morningstar Advisor - June/July 2009 - Profit and Progress
Morningstar Advisor - June/July 2009 - 36
Morningstar Advisor - June/July 2009 - 37
Morningstar Advisor - June/July 2009 - 38
Morningstar Advisor - June/July 2009 - 39
Morningstar Advisor - June/July 2009 - How the Fed Contributes to Crises
Morningstar Advisor - June/July 2009 - 41
Morningstar Advisor - June/July 2009 - 42
Morningstar Advisor - June/July 2009 - 43
Morningstar Advisor - June/July 2009 - 44
Morningstar Advisor - June/July 2009 - 45
Morningstar Advisor - June/July 2009 - 46
Morningstar Advisor - June/July 2009 - 47
Morningstar Advisor - June/July 2009 - Holding Steady
Morningstar Advisor - June/July 2009 - 49
Morningstar Advisor - June/July 2009 - 50
Morningstar Advisor - June/July 2009 - 51
Morningstar Advisor - June/July 2009 - Appleseed Adds Value to SRI Formula
Morningstar Advisor - June/July 2009 - 53
Morningstar Advisor - June/July 2009 - 54
Morningstar Advisor - June/July 2009 - 55
Morningstar Advisor - June/July 2009 - Four Picks for the Present
Morningstar Advisor - June/July 2009 - 57
Morningstar Advisor - June/July 2009 - Long-Term Investors Can Find Value among Industrials
Morningstar Advisor - June/July 2009 - 59
Morningstar Advisor - June/July 2009 - 60
Morningstar Advisor - June/July 2009 - 61
Morningstar Advisor - June/July 2009 - Higher Yields, Hold the Risk
Morningstar Advisor - June/July 2009 - 63
Morningstar Advisor - June/July 2009 - Bargains in U.S. Industrials
Morningstar Advisor - June/July 2009 - 65
Morningstar Advisor - June/July 2009 - Mutual Fund Analyst Picks
Morningstar Advisor - June/July 2009 - 67
Morningstar Advisor - June/July 2009 - 68
Morningstar Advisor - June/July 2009 - 69
Morningstar Advisor - June/July 2009 - 50 Most Popular Equity ETFs
Morningstar Advisor - June/July 2009 - 71
Morningstar Advisor - June/July 2009 - Undervalued Stocks
Morningstar Advisor - June/July 2009 - 73
Morningstar Advisor - June/July 2009 - 74
Morningstar Advisor - June/July 2009 - 75
Morningstar Advisor - June/July 2009 - Most Popular Variable Annuities
Morningstar Advisor - June/July 2009 - 77
Morningstar Advisor - June/July 2009 - 78
Morningstar Advisor - June/July 2009 - New at Morningstar
Morningstar Advisor - June/July 2009 - Talkin’ ‘bout a Revolution
Morningstar Advisor - June/July 2009 - Cover3
Morningstar Advisor - June/July 2009 - Cover4
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