Stock Strategist

European Equity and Credit Research Conference Preview

A look at some high-quality names in advance of our Paris investor gathering.

May 10, 2011

On May 25, 2011, Morningstar will be hosting its inaugural European Equity and Credit Research Conference at the Le Meurice hotel in Paris. Although it is an abbreviated event compared to our annual Stocks Forum in Chicago, we have invited a variety of high-quality, wide- and narrow-moat companies for investors to consider. In advance of the event, we would like to preview some of the participating firms that look attractive to us today.

Before delving into the companies' stories, it's important to understand Morningstar's investment approach. We think buying wide- or narrow-moat stocks at a discount is a great long-term strategy. By following this strategy, investors can own a piece of a business with strong competitive advantages that we expect to earn excess returns on capital well into the future. At the same time, investors benefit from additional stock price appreciation as the market recognizes that underlying value.

Behind each of these companies' moats is a management team. Conference attendees will have a rare opportunity: direct access to a company's executives. They'll also listen in on a wide range of issues of particular interest to serious investors, including how managers deal with the imperatives to produce short-term results while also managing the long-term strategies that make their businesses fundamentally attractive. In addition, attendees also will be able to partake in panel discussions with Morningstar analysts covering topics such as our outlook for global pharmaceutical firms, and how to identify sound opportunities in emerging markets. If you are based in Europe, and are interested in attending the event, please email Eurostocksforum@morningstar.com. The event is free, but space is limited.

We think long-term investors should have all of the participating companies on their radar screens. However, several are trading at attractive discounts to what we believe they're really worth. In our view, these names deserve special investor consideration.

Abbott Laboratories (ABT)

Morningstar Rating: / Dividend Yield: 3.65%

Unlike its industry peers, Abbott faces relatively minor patent losses during the next five years, and is well-positioned to ride a strong tailwind of demand for its products. Most importantly, we expect continued strong demand for the company's top drug, Humira. With drug penetration in rheumatoid arthritis reaching only 20% and even less in psoriasis and Crohn's disease, Humira should grow at double-digit rates for the next four years. Humira's growth is critical as the drug represents almost 20% of the company's top line and more than one third of the bottom line. Outside of the drug group, Abbott's strong competitive position in nutritionals and diagnostics reduces the volatility of its earnings and creates additional avenues of growth. Further, we expect Abbott to maintain its leading market share in the drug-eluting stent market until the next potential game-changer--Abbott's own bioresorbable stent in 2013-2014

Vivendi (VIV)

Morningstar Rating: / Dividend Yield: 7.3%

Vivendi provides a mix of stable cash flows and growth. Stability is generated from SFR, the second-largest telephone company in France, and Canal+, the country's largest cable operator. Growth comes from Activision Blizzard, the largest gaming company in the world, and telecom markets in Brazil and Africa. The firm also owns Universal Music, the largest music company in the world. Together these operations have a scale that would be difficult to replicate and provide high returns on capital, which in turn allow for a strong dividend and growth to boot.

Here is a complete list of the companies that will be presenting at the 2011 European Equity and Credit Research Conference:

Abbott Laboratories (ABT)

Market Cap: $81.2 billion

Morningstar Rating:

Edenred (EDEN)

Market Cap: EUR 4.85 billion

Morningstar Rating: