Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 349

Morningstar: Douglass interview, 29 top picks, corona research

Hamish Douglass exclusive interview

 
Hamish Douglass sent an update to his investors on 18 March 2020, including:
 
"As you are aware, the COVID-19 virus is a fast-moving and fluid situation. The most likely outcome of the efforts to contain this health emergency is a near total shutdown of the world’s economy over the next two to six months. This is likely to lead to a near total collapse in demand for many (but not all) businesses over this period. For some, this could prove fatal, particularly for small businesses and for businesses that have high financial leverage or high fixed costs. Only governments can prevent these businesses from failing. The potential financial and social consequences are very concerning. 
 
The shape of the economic recovery will depend upon the scale, timeliness and effectiveness of actions taken by governments and central banks to help businesses to survive and keep people employed over the next two to six months...
 
Over the past week, we have taken steps to increase the defensiveness of the Global Equity portfolio and have increased cash in the strategy from approximately 6% to approximately 15%. All cash is held in US dollars."

29 quality stocks at great prices

By Mark LaMonica, Individual Investor Product Manager, Morningstar

Great companies carve out a solid competitive advantage and as coronavirus rattles markets, many such names are trading at hefty discounts. Morningstar's list of 5-star rated stocks has expanded rapidly as prices fall and now includes 29 companies.

Market shocks can be cause for anxiety but if investors have the capital, such shocks can be an opportunity to pick up the stocks of great companies at discounts.

Investors define 'great' in different ways. From Morningstar's perspective, great companies are those that have carved out solid (and in some cases growing) competitive advantages that will allow them to thrive for years to come--in Morningstar parlance, they’ve built economic moats. Such companies are typically led by adept managers who have a record of allocating capital in ways that add value.

To find such exceptional firms, we looked for the following three qualities.

1. Economic moat: First, they need to boast wide or narrow Morningstar Economic Moat Ratings. In other words, these companies have strong competitive positions.

2. Exemplary stewardship: Second, they must earn our top Morningstar Stewardship Rating—exemplary or standard. In other words, these companies are led by exceptional corporate managers who have a proven record of making investments and acquisitions supporting the competitive advantages and core businesses of their companies--and they won't pay an arm and a leg to do so. They'll divest underperforming or noncore businesses. They'll find the right balance of investing in the business and returning cash to shareholders via dividends and share repurchases. And they'll assemble a portfolio of attractive operating assets and skilled human capital, and then execute well.

3. Discounted price: And lastly, the stocks of these companies must be trading at a decent discount to our fair value estimates, selling at Morningstar Ratings of 4 or 5 stars at the of writing.

We used the Morningstar Stock Screener to look for these qualities. Only three stocks made the cut. Don't think of this as a list of 'buys' though. Instead, think of it as a collection of names to investigate further. A 5-star rating does not suggest that the stocks won't drop further. The aim is not to pick the bottom, but to highlight to investors that they can pick names up at a discount.

The three companies are: 

  • Ansell Ltd: we view Ansell as well-managed and able to deliver a consistent, growing earnings stream
  • Ryman Healthcare Ltd: We believe Ryman can roughly triple its annual revenue by the end of our 10-year forecast period, as the group expands the number and maturity of villages under its management
  • Macquarie Group Ltd: Macquarie Group is a successful global asset manager and investment bank. Its main strengths are risk management, business unit interconnectedness and an ability to evolve and adapt to changing market conditions.

Although nobody know when the market will bottom, more companies are offering value than at any time in recent years.

Click here for access to Morningstar Premium for a free four-week trial, including portfolio management services from Sharesight and detailed research on 1600 global stocks as well as 450 ETFs and Funds, including the companies Morningstar currently rates as 5-star investments.

Coronavirus: widespread disease but drug pipeline progress

Morningstar's detailed research on coronavirus concludes there will be minimal long-term economic impact, with forecast low-fatality rates. It implies the threats to the economy are overrated, although please note this paper was first published to US subscribers on 9 March 2020. Click on the image for the full free paper.

 


 

Leave a Comment:

     
banner

Most viewed in recent weeks

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Welcome to Firstlinks Edition 467

Fund manager reports for last financial year are drifting into client mailboxes, and many of the results are disappointing. With some funds giving back their 2021 gains, why did they not reduce their exposure to hot stocks when faced with rising inflation and rates?

  • 21 July 2022

Welcome to Firstlinks Edition 466 with weekend update

Heard the word, cakeism? As in, 'having your cake and eating it too'. The Reserve Bank wants to simultaneously fight inflation by taking away spending power, while not driving the economy into a recession. If you want to help, stop buying stuff.

  • 14 July 2022

Welcome to Firstlinks Edition 465 with weekend update

Many thanks for the thousands of revealing comments in our survey on retirement experiences. We discuss the full results. And with the ASX200 down 10%, the US S&P500 off 20% and bond prices tanking, each investor faces the new financial year deciding whether to sit, sell or invest more.

  • 7 July 2022

Latest Updates

Economy

The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.

Shares

Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.

Shares

The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.

Property

The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.