What’s new in Morningstar?

market sharesNew Sector Reports in the Markets Section

Have you explored the Markets tab of Morningstar Investment Research Center recently? You have always seen the most active stocks of the day, sector and style return data, and quarterly industry reports. Morningstar’s most recent addition is a list of detailed sector reports.

Check back each quarter for the newest research and analysis from Morningstar’s equity analysts. See a quick overview of the data and then read through specific industry updates, key investment considerations, and more. Reports are available on the following sectors: basic materials, communication services, consumer defensive, consumer cyclical, energy, financial services, health care, industrials, real estate, technology, and utilities.

While you’re logged into Morningstar Investment Research Center, don’t forget to look at the Help & Education tab for information on our database training webinars. All training sessions are available to users and are offered every month. Our next session is June 26 at 3 p.m. Central Time. Click here to attend. Call (866) 844-9418 to listen to the teleconference, and utilize the access code and password below.

Access Code: 630 837 4334
Event password: mirc

We hope you can attend to learn more about the many features of Morningstar Investment Research Center.

Investing 101

If you missed the past webinar Investing 101, the  recording is now available on Morningstar Investment Research Center under the Portfolio Tab/Investment Goals. The video is a replay of the webinar presented during Money Smart Week, Investing 101: Simple Strategies to Get Started in the World of Investing. The session covers the basics of how to start investing, including why you should invest, determining your investment goals, and finding the right mix of stocks, bonds, and other investments for you using Morningstar research.  The running time is about one hour. (Note: if may take a few minutes to download depending upon your Internet connection.

Another addition to the database is the most recent Market Outlook (Markets tab). You will find the document under Q1 2011 of the Quarterly Industry Reports section. The piece looks at what happened during the past quarter and includes analyst insights for industries and sectors in the second quarter of this year which include:

  • S igns of inflation are unmistakable–and we don’t think this is good news for the stock or bond market.
  •  M any companies will struggle to pass along higher input prices, which means lower margins and/or substitution of alternative inputs.
  • W e think “moaty” firms will weather any inflation better than companies without a competitive advantage.

Finding Undervalued Stocks

The Training Corner | by Lars Wasvick, Associate Product Manager

The Stock Screener on Morningstar Investment Research Center is a very powerful tool. You can be incredibly specific with your criteria, from operating income growth to asset turnover and everything in between. However, with one simple screen, you can find a list of undervalued stocks in just a few clicks.

You can screen for undervalued stocks using our price/fair value measurement. Let’s step back and define our terms: Fair value is an estimate of what a particular stock is worth. At Morningstar, our stock analysts determine the prices they think stocks on their coverage lists should be trading at based on the intrinsic value of the company and its projected future cash flows.

Where an analyst thinks a stock should be trading and the actual price at which a company trades, however, can be miles apart. To measure this difference between where a stock is trading and its fair value, we have the price/fair value calculation. Basically, it is the price divided by the fair value estimate.

Since equal prices would give us an answer of 1, we know that anything with a price/fair value below 1 is undervalued, and anything above 1 is overvalued. To screen for this, select Price/Fair Value from the dropdown menu. Set the condition to less than, and enter 1 as the value.

On the results page you will see all the stocks that our analysts think are undervalued. To see the ratios, change the view from Snapshot to Morningstar Ratings at the top of the screen. Now you have a list to sort to see the most and least undervalued stocks. From there I suggest visiting the stocks’ data pages and reading the analyst’s report to get his or her full opinion.

For more helpful tips on the new features to Morningstar Investment Research Center, or for an overview on the database, please join us for training April 7 at 11 a.m. Central time. Visit the Client Site http://library.morningstar.com/tracking to attend, or e-mail librarytraining@morningstar.com for further details.

Finding Stock Rating Changes

Wall Street Sign. Author: Ramy Majouji

Image via Wikipedia

One of the great things about Morningstar Investment Research Center‘s stock data is the Morningstar rating. Our goal is to answer for you and your patrons, Is a company worth the price that the market is asking for its shares? To answer that question, we calculate stock ratings that represent our opinion of the firm’s intrinsic value relative to its price.

Since the market is constantly fluctuating, it only makes sense that we are continuously updating our star ratings for stocks. With the help of the Stock Screener on Morningstar Investment Research Center, anyone can find these companies that have rating changes from the previous day.

If you go to the Stock Screener and look under the dropdown menu, you’ll find a data point called “Other Morningstar Rating Data.” If you select that, the display will give you the one-day rating change. If you just want stocks with star rating changes, set the condition to not equal and the value to “Remained the Same.” The results will show you everything with a rating change, up or down.

If you are looking to distinguish between stocks that have risen or fallen, then modify the condition and value selections. This part can be a little trickier because using the wrong sign might end up giving you results for everything that did not change.

The proper combination to find stocks with ratings that have increased is to use Morningstar Rating Change (one day) > = Rose One Star. To find stock ratings that have decreased, use Morningstar Rating Change (one day) < = Fell One Star.

If you have questions on Morningstar’s approach to rating stocks, there is a document on the Help & Education page explaining the methodology and benefits to investors. If you would like additional stock commentary, check out our Morningstar StockInvestor publication on the new Newsletters page.

For more helpful tips on the new features to Morningstar Investment Research Center, or for an overview on the database, please join us for training on Jan. 6 at 11 a.m. Central time. Visit the Client Site http://library.morningstar.com/tracking to attend, or e-mail librarytraining@morningstar.com for further details.

Investment Tip – How to Invest


Historical inflation, using data from http://o...

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Investing Tip of the Month from Morningstar Investment Research Center

How to Invest in a Deflationary Environment

By Christine Benz, Director of Personal Finance

Question: I’ve been reading a lot about deflation recently and am worried. Will any investments hold up well in a deflationary environment?

Answer: Although inflation grabbed all the headlines less than a year ago, it’s downright tame right now. Instead, some market participants are concerned that we could confront a period of declining prices as the government’s stimulus package winds down, particularly if unemployment stays high and the housing market stays in the doldrums. Some investors, such as DoubleLine’s Jeffrey Gundlach, have argued in the past that deflation could be a near-term problem, followed by high inflation rates down the line.

Why It Hurts
At first blush, declining prices for stuff may not sound that bad, particularly for consumers who might be able to take advantage of lower prices for everything from groceries to LCD televisions. But a persistent need to slash prices can be bad for businesses and could ultimately lead to layoffs, reduced consumer spending, and declining prices for a broad swath of assets, from real estate to commodities. Those forces, in turn, could put pressure on corporate profits and stock prices.

Inflation is a force to be reckoned with, too. But it’s deflation that really makes economists shudder.

What You Can Do
As regular readers know, I’m not a big fan of going overboard in anticipation of one specific economic scenario or another. For such a bet to pan out, you’d need to get your arms around myriad difficult-to-predict factors, including growth rates not just in the United States but overseas, as well.

If you’re truly concerned about deflation, you can take comfort in knowing that the investments that will tend to perform best in a declining-price environment are probably already in your portfolio. The classic deflation hedge is a simple fixed-rate investment–cash or government-issued bonds. (Corporate bonds will tend to be more vulnerable in a deflationary period because charging lower prices will tend to cut into the profitability–and viability–of many companies.) Because their payouts are fixed, the dough you receive via income from such vehicles is effectively worth more and more each year as prices fall. For the same reason, fixed annuities are also attractive in such an environment.

And while bonds will typically hold up better than stocks in a period of declining prices, the same “bird in the hand” logic means that dividend-paying stocks should hold up better than non-dividend-payers in a period of declining prices.

Go Easy
Although these investments are mainstays for investor portfolios regardless of the economic environment, it’s a mistake to go full-throttle into deflation-protection mode. That’s because the to-avoid/downplay list for deflationary times is a pretty long one, encompassing equally important investments such as most stocks, corporate bonds, commodities, real estate, and inflation-protected bonds.

And over the long haul, it’s also worth noting that inflation has been a bigger issue in the U.S. than has deflation. So hedging your portfolio against the former threat, particularly if you’re retired and relying on fixed-rate investments for much of your day-to-day income, is a better bet than getting too fancy about defending your portfolio against deflation.

Finally, bear in mind that the usual prescription for a deflationary period–government bonds and cash–isn’t currently offering much in the way of yield today. Cash investors are lucky to earn 1% on their money, whereas investors in intermediate- or long-term government bonds would be grateful to pick up 3% or 4%. Those yields would shrivel to next to nothing if inflation were to pick up. For all those reasons, positioning your portfolio for deflation alone is much more risky than it might seem.

A version of this article appeared on Morningstar.com on Sept. 14, 2010.