Morningstar Advisor - December 2012/January 2013 - (Page 68)

Screens Companies Where Management Teams Add Value By David Krempa Use this screen to find strong stewards of shareholder capital. For this search, we will look for business trading at attractive valuations that also have exceptional management teams. Stewardship  Exemplary Morningstar recently launched new stewardship ratings to assess the quality of management teams. Morningstar’s analysts now rate the management of each firm they cover as Exemplary, Standard, or Poor. The rating seeks to analyze each management team’s stewardship of shareholder capital, with particular emphasis on capitalallocation decisions. Analysts consider companies’ investment strategy, history of investment timing and valuation, dividend and share buyback policies, execution, among other factors. Firms that earn an Exemplary rating have a history of allocating capital to high-return investments with strong execution. Firms that earn a poor rating likely have a track record of overpaying for acquisitions or pursuing value-destructive investments. By limiting our search to only Exemplary firms, we eliminate more than 90% of Morningstar’s coverage universe. so this criterion will make sure we are paying an attractive price for these well run businesses. And 3 Year Revenue Growth  5% And Morningstar Rating > QQQQ Screening for 4- and 5-star-rated firms gives us companies that Morningstar’s equity analysts believe are trading below the business’ intrinsic value. Morningstar analysts use explicit forecast of firm’s fundamentals to arrive at a discounted cash flow valuation. Even the most well-run business could be a bad investment if the valuation is too high, Next, we screen for stocks that have reported an average annual revenue growth rate of more than 5% over the past three years. Although recent results don’t provide a guarantee of what future results will look like, this screen should help us find businesses that have strong growth prospects. If nothing else, it will eliminate declining businesses. Declining businesses can be a strong investment at the right price, but with this screen, we are focusing on strong management teams that can create significant value for shareholders over a long time period, so 68 Morningstar Advisor December/January 2013

Table of Contents for the Digital Edition of Morningstar Advisor - December 2012/January 2013

Morningstar Advisor - December2012/January 2013
Letter From the Editor
What Stands Between Me and Stupid
Why Do You Use Dynamic Funds of Funds?
Serving Clients and Community
How to Pick an ETF Managed Portfolio Strategy
Tactical View of Risk
Investments á la Carte
Investment Briefs
Unbundling ETF Managed Portfolios
Risks Loom Over Telecom Industry
Outsourcing Asset Allocation
ETF Managed Portfolios on the Rise
Age-Based Options Take Over 529 Industry
How the Landscape for Advisors Is Changing
Mark Egan Embraces Volatility
Alpha, Beta, and Now … Gamma
Performance Gaps
Gains in Momentum
Companies Where Management Teams Add Value
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Once and Future King

Morningstar Advisor - December 2012/January 2013