Morningstar Advisor - December 2010/January 2011 - (Page 68)

Screens Stuff Your Stocking With Out-of-Favor Bargains By David Krempa Beat the rush and use this screen to find beaten-down, but solid firms. It’s holiday time, and to go along with the bombardment of advertising, promotions, and articles about must-have toys, here’s a screen that looks for attractive consumer-related investments. With high unemployment and a weak housing market, it’s easy to see why an investor’s initial reaction might be to avoid consumerdependent companies. We have yet to see significant and definitive signs of an economic recovery, and every economist has a different opinion on how long the weak economy will prevail. The uncertainty presents a good time to go shopping for bargains, and investors can pick up some high-quality companies at discounted prices. Or Sector 5 Consumer Goods ) and future prospects are attractive. And Morningstar Rating . 3 We start our screen by restricting our list to only consumer-services or consumer-goods stocks. This will leave us with more than just traditional consumer discretionary companies, it will also include everything from auto manufacturers to grocery stores. And Total Return YTD , 0 ( Sector 5 Consumer Services Next, we look for stocks that have been laggards so far in 2010. Most stock indexes have posted middle- to high-single-digit returns, so stocks meeting our criteria will have underperformed by a meaningful amount. Buying stocks that are temporarily unloved or out of favor by the market can be very profitable; of course, this strategy assumes that the underlying business is still healthy We turn to Morningstar’s equity analysts to make sure that we are finding good stocks, rather than stocks that are positioned to lag the market for years. Searching for stocks with Morningstar Ratings of 4 or 5 stars will only find stocks that Morningstar analysts think are attractively valued relative to the analysts’ forecasts of the companies’ future results. And ROE % Rank Industry Year 1 , 50% Although we are looking for companies with stock prices that have lagged, we want firms with strong business performance. By looking at returns on equity, we can find companies that are highly profitable and efficiently using 68 Morningstar Advisor December/January 2011

Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011

Morningstar Advisor - December 2010/january 2011
New on
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Investment Briefs
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
All Aboard!
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?

Morningstar Advisor - December 2010/January 2011