Morningstar Advisor - April/May 2012 - (Page 68)

Screens U.S. Industrials Could Add Some Magic to Europe-Weary Portfolios By Elliot Olson Use this screen to find long-term-value stocks at good valuations. As the current investment environment seems more uncertain than ever, given the day-to-day status of the European Union, we think that investors should focus their attention on the ground-up recovery occurring domestically. Specifically, the U.S. industrials sector contains numerous examples of long-term value stocks at opportunistic valuations. According to the latest industrial production report, the U.S. is actually outpacing China and Europe on the manufacturing side, and there are higher production-growth expectations from the purchasing managers survey. Coupled with strong balance sheets, we believe that industrial companies with 4- and 5-star Morningstar Ratings should do well versus other sector competition. This screen can be used to pick out the best of that bunch. Sector  Industrials In light of the positive production news, filtering down to the industrials sector level is a must. After this portion of the screen alone, the stock universe is cut from 14,000 to a little less than 2,500. Although the butterfly effect felt by companies directly related to production won’t be included, there are still plenty of firms to prune. on the potential purchase. Depending the uncertainty rating, stocks with 5-star Morningstar Ratings are trading with discounts of at least 20% for low-uncertainty companies, and very-high-uncertainty companies require discounts of at least 50% from Morningstar’s fair value estimate. And Credit Rating  BBB+ And Morningstar Rating  QQQQ With the company’s fair value being one of the primary focuses of investors, the Morningstar Rating lets us figure out just how good of a discount we are getting If you’re trying to find out whether the companies you’re looking for are in good financial health but don’t want to screen for all the specific metrics on debt and free cash flow, using the credit rating is somewhat of a shortcut to a similar result. We like using the credit rating as a generalsafety kind of filter; our credit analysts 68 Morningstar Advisor April/May 2012

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2012

Morningstar Advisor - April/May 2012
Letter From the Editor
We’re Too Smart
How Do You Use Alternatives?
Taking the Lead
How to Find Economic Moats
The Beauty of Currencies
No Clarity on Bonds
Four Picks for the Present
Investment Briefs
Performance Chasing, Evaluated
Technology’s Slim Pickings
How Much Is Enough?
The Fear Bubble
Three Traits of a Successful Long-Short Equity Manager
Why Absolute-Return Funds Fail to Deliver
An Economist’s Response to Crises
Undiscovered in Plain Sight
Untangling ETF Tax- Efficiency Myths
Central Banks Driving the Gold Rush
U.S. Industrials Could Add Some Magic to Europe-Weary Portfolios
No-Hesitation Allocation Funds
Our Favorite Mutual Funds
50 Most Popular ETFs
Undervalued Stocks With Wide Moats
The Greatest Story Ever Told

Morningstar Advisor - April/May 2012