Morningstar - Q2 2020 - 28

Dispatches

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who stayed the course with their investments
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within a few years.

TRENDS

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The global O 19 pandemic has swiftly
reversed our view of the North American equity
market. Amid virus and related economic
concerns, the Morningstar US Market Index
has plummeted roughly 20% from the end
of 2019. And although we have lowered many
of our fair value estimates, the market drop
has revealed numerous buying opportunities
across sectors. The median stock in our
North American equity coverage is trading at
a 22% discount to our fair value estimate
at the end of March, compared with the 3%
premium at the end of last year.

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Energy remains the cheapest sector
in our coverage following shocks to both oil
demand ( O 19) and supply (break up
of O
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oil prices are sustainable in the long run, and
our 55 per barrel midcycle price forecast
is unchanged.

With this in mind, investors might see coronavirus
volatility as a way to invest at a discount
and maybe reach some of their stretch goals.
This tactic is a way of practicing anxiety
reappraisal, which entails reframing nervousness
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Sarah Newcomb.

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also overdone; the median travel and
leisure stock in our coverage trades at about
half of our estimate of intrinsic value. For
investors looking for companies less likely to
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utilities, two sectors that we thought looked
materially overvalued heading into 2020,
now trade at discounts.

O e
l 800 North American stocks we
cover, a hefty 67% have an undervalued
rating of 4 or 5 stars, whereas three months
ago, only about 20% were undervalued.
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in many years. Excluding utilities, the
median stock in the other 10 sectors we follow
trades at a more than 10% discount to
intrinsic value.

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Investors are using a shortcut that generally works
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appropriate for this scenario. Understanding
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in a better direction.
Samantha Lamas is a behavioral researcher for Morningstar.

eﬀ e S ﬀ ,
, is director of equity research,
North America, for Morningstar Research Services.

Steve Wendel is head of behavioral science for Morningstar.

Making the Franklin
Megamerger Work

Two Thirds of Our North American Coverage Is Undervalued

Sector

Total

All Coverage

832

Basic Materials

40

QQQQQ
QQQQ
Under Review

QQQ

QQ

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e BEN recent acquisition of Legg
Mason LM takes one back to the 1990s,
when Franklin acquired Templeton and Mutual
Series. Those deals were good for corporate
shareholders, but Franklin raised fees and watched
a steady stream of talented investors leave
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asset specialties, but now most of the legacy
Templeton funds have Morningstar Analyst
Ratings of Neutral, and the legacy Mutual Series
funds are rated Bronze.

Q

Communication Services 54
Consumer Cyclical

119

Consumer Defensive

63

Energy

78

Financial Services

81

Healthcare

87

Industrials

105

Real Estate

54

Technology

107

Utilities

44

Source: Morningstar. Data as of 03 26 2020.

28

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changed, but here are a few suggestions for
handling the new merger:
gEnsure that all fund mergers result in lower costs.
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Morningstar - Q2 2020

Table of Contents for the Digital Edition of Morningstar - Q2 2020
