Morningstar Advisor - April/May 2013 - (Page 68)

Screens Pump Them Up By John Zecy This screen finds energy firms with good long-term prospects despite short-term challenges. In this issue’s stock screen, we look for attractive oil and gas companies that can rise above bearish criticism and provide lucrative growth opportunities. Sector  Energy Some investors have understandably strayed away from the energy sector because of the interplay of political, economic, technological, and natural factors that cause unsettling volatility. These conditions continue to shape the global oil and gas market and do not appear to be changing anytime soon. However, Morningstar’s equity analysts remain bullish on domestic natural gas and continue to see considerable upside to current gas prices. While oil and gas companies operate in an enormously complex and challenging 68 Morningstar Advisor April/May 2013 business environment, we think periods of mediocre performance have caused investors to overlook companies with long-term growth prospects. To that end, we aim to look for energy names with superior asset quality that offer attractive discounts to our fair value estimates. And ( Economic Moat  Narrow Or  Wide by resource potential and per-unit production costs, is the biggest determinant of competitive position in the exploration and production space. Thinking about E&Ps in terms of economic moats can help cut through the short-term macro noise and identify which companies are best positioned for longer-term outperformance. Economic Moat Our analysts use the Morningstar Economic Moat Rating to describe a company’s ability to generate returns in excess of their cost of capital through the use of sustainable competitive advantages. Moats are typically earned through intangible assets, cost advantages, switching costs, network effects, and efficient scale. Asset quality, as measured ) And PCF  12 While a firm may carry sustainable competitive advantages, we want to ensure that we are paying a reasonable valuation. Consequently, we set the cutoff at companies trading at less than 12 times their current price to cash flow. And Morningstar Rating  5

Table of Contents for the Digital Edition of Morningstar Advisor - April/May 2013

Morningstar Advisor - April/May 2013
Letter From the Editor
The Pursuit of Happiness and Financial Advice
What Strategies Do You Use to Control Risk?
Driven to Succeed for Clients and Family
How to Assess a Portfolio’s Bond Risk
Luck, Skill, and Investing
Investments á la Carte
Investment Briefs
Investing’s No- Brainers Have Costs
A Defensive Ride
Risk On/On Risk
The Risk of Being Overconfident
Year of Living Dangerously
The Risk-Parity Approach
A Guide to Mutual Funds Running Risk-Parity Strategies
What Moats Tell Us About Risk
Risk’s Wake-Up Call
Seeing Is Believing
Why Investors Lag the Returns of Their Funds
Liquidity Signals
Pump Them Up
Golden Oldies Keep on Truckin’
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
Our Social Blind Spot

Morningstar Advisor - April/May 2013