Why Moats Matter: The Morningstar Approach to Stock Investing.pdf
Finding great businesses at great prices is the holy grail of investing. How can you tell a great business from a poor one? A great business is one that can fend off competition and earn high returns on capital for many years to come. Such companies have economic moats--structural advantages that protect them from competitors, just as physical moats protected castles from enemies. Even better than finding a great business is finding one at a great price. This book will: Introduce Morningstar's approach to stock investing Explain the concept of economic moats and the five sources of sustainable competitive advantage--Intangible Assets, Switching Costs, Network Effect, Cost Advantage, and Efficient Scale Establish the difference between business quality and undervalued stocks Discuss industry standards for evaluating moats Help determine how moats affect stock returns and stock valuation
Heather Brilliant , CFA is global director of equity and credit research and chief equities strategist for Morningstar. In this role, she leads the global equity and corporate credit research teams, consisting of more than 120 analysts, strategists, and directors in four offices around the world. Her team focuses on providing in-depth, fundamental equity and credit research based on sustainable competitive advantages and long-term valuation analysis. Brilliant is a member of Morningstar's Economic Moat committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. Elizabeth Collins , CFA, is director of equity research for Morningstar. She is chair of Morningstar's Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. Collins is also responsible for leading the basic materials team.
Preface Chapter One: Guiding Principles of Morningstar's Equity Research Question 1: How can we identify which businesses are great? Question 2: When is the best time to invest in great businesses? Chapter Two: What Makes a Moat? Moat Sources Notes Chapter Three: Why Moat Trends Matter Contributed by Stephen Ellis, a member of Morningstar's Economic Moat Committee and head of Financial Services equity research at Morningstar Moat Trends and Fundamental Performance Five Key Considerations for Moat Trends Intangibles CostAdvantage Switching Costs Network Effect Efficient Scale Best Practices for Moat Trend Analysis Chapter Four: How Stewardship Affects Economic Moats Contributed by Todd Wenning, who oversees Morningstar's equity stewardship methodology Meet Our Stewardship Methodology Drilling Down Chapter Five: Applying Moats to Dividend Investing Contributed by Josh Peters, Chief Equity Income Strategist for Morningstar and editor of the Morningstar DividendInvestor newsletter Why Dividends Matter Which Dividends? Chapter Six: The Importance of Valuation Contributed by Joel Bloomer, Matt Coffina, and Gareth James, members of Morningstar's Moat Committee and contributors to Morningstar's valuation methodology. Valuation Concepts Cost of Capital and Returns on Capital Morningstar's Valuation Approach Example: Calculating ROIC Forecasting Future Free Cash Flows The Morningstar Rating for Stocks Fair Value Uncertainty and Cost of Equity Notes Chapter Seven: Do Moat Ratings Predict Stock Returns? Contributed by Warren Miller, Head of Quantitative Research at Morningstar Chapter Eight: Putting Moat and Valuation to Work: Portfolio Strategies Wide Moat Focus Index The Tortoise and Hare Portfolios Chapter Nine: Basic Materials Commodity Manufacturers Commodity Processors Metals and Mining Chapter Ten: Consumer Beverages Consumer Defensive--Consumer Products Tobacco Restaurants Retail Defensive Specialty Retail Lodging Notes Chapter Eleven: Energy Oil and Gas Drilling Oil and Gas Exploration and Production Oil and Gas Midstream Refining Oil & Gas Integrateds Engineering Services Chapter Twelve: Financial Services Banks Capital Markets Credit Services Financial Exchanges Insurance Chapter Thirteen: Healthcare Pharmaceuticals Biotechnology Medical Devices Medical Instruments and Supplies Diagnostics and Research Chapter Fourteen: Industrials Railroads Airport Operators Aerospace and Defense Truking and Marine Shipping Waste Management Heavy Equipment Diversified Industrials Chapter Fifteen: Technology Consumer Technology Enterprise Hardware Systems IT Services Semiconductors Software Telecom Services Chapter Sixteen: Utilities Regulated and Diversified Utilities Independent Power Producers About Morningstar Index