Morningstar Advisor - June/July 2010 - 76

By the Numbers: Stocks

Undervalued Stocks With Wide Moats
Undervalued stocks with significant competitive advantages can make attractive long-term holdings. With that in mind, we scoured our 2,000-plus stock coverage universe for highquality stocks (those boasting wide economic moats) that are trading on the cheap (rated 4 or 5 stars by our analysts). Our analysts award wide economic moats to companies that they believe possess durable competitive advantages that are likely to confer economic profits well into the future. When a stock trades at a suitably wide discount to our estimate, we award it 4 or 5 stars. The wider the discount, the higher the star rating, and vice versa. There were 41 stocks that fit that profile as of April 30, 2010, 19 less than made the list Feb. 28, 2010.
Name Industry

After the wild ride in the market on May 6, the first thing on many investors’ mind was how to put any cash they’ve been saving for a pullback to work In fact, some may even relish the chance. The market has looked fairly valued for quite a while, making it progressively harder to find cheap stocks. After this sell-off, a few more opportunities have emerged that investors may wish to consider, or at least keep on their radar screen in the event on another sharp decline. Valuations are still nowhere near the levels we saw in March 2009, but they are much more attractive now then they were just a few weeks ago when the market as a whole was close to 10% overvalued.

But even though the market is getting cheaper, it doesn’t mean you should pile into just any stocks that dip. There are fundamental reasons that many shares are falling. The sovereign debt fears in Greece are expanding, and worries are growing about other Eurozone countries like Portugal and Spain. These fears are denting the feasibility of the euro as a reserve currency, sending investors into the U.S. dollar. A higher dollar means that U.S. firms with large export businesses could suddenly find themselves less competitive as their goods become relatively more expensive to foreign buyers. Finally, although the economic recovery in the United States seems to have taken hold, there is still a chance that growth could falter again. Buying stocks that are trading at a sizable discount to their intrinsic value is still the way to go.
P/E Ratio (trailing) Revenue Growth % 3 Yr EPS Dividend Yield ROE % Growth % % Current (trailing) 3 Yr

Market Cap ($Mil)

EPS TTM

3M Company MMM Abbott Laboratories ABT Apollo Group, Inc. A APOL Applied Materials AMAT AstraZeneca PLC ADR AZN Blackrock, Inc. BLK Comcast Corporation CMCSK DeVry, Inc. DV Eli Lilly & Company LLY Exelon Corporation EXC ExxonMobil Corporation XOM Federated Investors, Inc. B FII Fiserv, Inc. FISV General Electric Company GE Genzyme Corporation GENZ GlaxoSmithKline PLC ADR GSK Home Depot, Inc. HD International Speedway Corporation A ISCA Johnson & Johnson JNJ KLA-Tencor Corporation KLAC Landstar System, Inc. LSTR Lowe's Companies Inc. LOW Maxim Integrated Products MXIM Merck & Co Inc MRK Monsanto Company MON

Diversified Drug Manufacturers - Major Education & Training Services Semiconductor Equipment & Materials Drug Manufacturers - Major Asset Management CATV Systems Education & Training Services Drug Manufacturers - Major Diversified Utilities Major Integrated Oil & Gas Asset Management Business Services Diversified Biotechnology Drug Manufacturers - Major Home Improvement Stores Sporting Activities Drug Manufacturers - Major Semiconductor Equipment & Materials Trucking Home Improvement Stores Semiconductor - Broad Line Drug Manufacturers - Major Agricultural Chemicals

63,109 79,433 8,703 18,510 64,176 32,679 53,187 4,440 40,325 28,795 319,961 2,490 7,788 201,233 14,162 96,785 59,656 1,478 176,949 5,861 2,222 39,145 5,916 109,161 34,403

4.52 3.69 4.00 -0.07 5.19 6.11 1.03 2.97 -0.20 4.14 3.98 2.04 3.06 1.01 1.54 2.25 1.57 0.15 4.40 -3.08 1.37 1.21 0.27 5.65 2.44

18.48 14.29 15.24 — 8.61 35.59 14.27 21.93 9.19 10.71 16.84 13.74 16.69 17.67 33.67 11.74 20.88 185.19 14.81 — 30.67 20.04 72.46 6.61 25.38

0.29 11.03 17.06 -18.22 7.41 30.85 12.72 20.30 11.65 3.42 -6.31 6.34 4.57 1.07 12.32 6.87 -5.74 -4.60 5.10 -9.79 -7.18 0.21 -3.94 6.61 18.39

-3.69 48.80 16.86 — 10.47 16.44 16.84 55.19 17.16 20.29 -15.60 1.06 6.41 -20.37 — 4.62 -17.44 -60.02 5.66 — -10.80 -15.28 -70.26 40.66 44.86

2.32 3.21 — 1.74 5.20 1.82 1.72 0.29 5.60 4.82 2.48 3.98 — 2.12 — 5.19 2.59 0.46 3.05 1.76 0.40 1.33 4.12 4.34 1.68

28.20 28.49 48.05 -1.24 41.13 4.81 8.75 22.82 53.25 22.86 17.25 41.47 16.94 9.66 5.63 61.67 14.32 0.60 26.35 -2.93 27.02 9.61 3.11 33.15 15.84

76 Morningstar Advisor June/July 2010

Morningstar Advisor - June/July 2010

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