Morningstar Advisor - February/March 2012 - (Page 68)

Screens Safety Picks for the Many Moods of Mr. Market By David Krempa Use this screen to find low-risk picks with nice potential. European troubles have dominated the financial media for months now, with no end in sight. With all this uncertainty constantly making the front page and sending the market on a spree of volatility, it’s no surprise that many investors have been concerned about putting money to work in the stock market. With interest rates remaining near record lows, however, cash and fixed-income assets do not look particularly attractive, either. With this issue’s stock screen, we will try to find low-risk investments that still offer potential attractive returns, through both income and appreciation. Domestic 5 Yes experiencing significantly more uncertainty and volatility than businesses in the United States. In today’s globally connected economy, it is hard to avoid all European exposure because the majority of large corporations are going to derive some portion of their sales from Europe. However, on average, U.S. firms rely on Europe for a smaller portion of revenue than European firms do. More significantly, U.S. firms will likely see less of a direct impact from new regulations or austerity measures that may be imposed on European companies. This domestic-only restriction isn’t perfect, but when combined with other criteria, it should help isolate some solid investment opportunities. Next, we search for companies with a low fair value uncertainty rating. Morningstar’s equity analysts assign each firm we cover an uncertainty rating, which assesses how much uncertainty there is in estimating the intrinsic value of the business. Lowuncertainty firms should have lower sales and earnings volatility and should be less susceptible to external factors that could significantly impact the firm’s value, such as regulation, pending litigation, or a rapidly changing competitive environment. We would prefer to find firms with reliable revenue and earnings streams and that compete in industries that are slow to change. And Economic Moat 5 Wide Our first criterion will help us eliminate Europe-based firms, because they are And Fair Value Uncertainty 5 Low 68 Morningstar Advisor February/March 2012

Table of Contents for the Digital Edition of Morningstar Advisor - February/March 2012

Morningstar Advisor - February/March 2012
Letter From the Editor
Make a Difference Stories, Not Debates
How Concerned Are You About Europe?
Analytical and Independent
What to Ask When a Fund Manager Leaves
Past, Present, Future
Have Financials Gotten Cheap Enough?
Four Picks for the Present
Investment Briefs
Tactical Funds Miss Their Chance
Specialty Retail: Ad Hoc Opportunity
How Europe Is Making Its Crisis Worse
Impact on U.S. Economy Will Be Minimal
European Banks: Bargains or Value Traps?
Don’t Count the Euro Out Yet
Europe on the Brink
GoodHaven Realizes Its Vision
How Index Trading Increases Market Vulnerability
Nonlisted REITS: Handle With Care
Safety Picks for the Many Moods of Mr. Market
On the Prowl for Large- Blend Index-Beaters
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Math That Matters

Morningstar Advisor - February/March 2012