Stocks for Your Radar Screen

We periodically assemble lists of stocks we think are worth watching, and here are four of our latest lists:

• Mid-Caps with Moats
• Favorite Financial Stocks
• Favorite Health Stocks
• Low-Risk/High-Yield Stocks

These aren't buy lists. Most of these stocks aren't even cheap in our opinion. But fundamental to our way of thinking about stocks is this two-step process:

First, identify companies you're comfortable holding. For most prudent investors, that means focusing on companies possessing competitive advantages, or economic moats, which allow them to earn high returns on investors' capital. It also means focusing on companies that fit well into your portfolio; for example, if you've run your portfolio through our Diagnostics tool and found you lack exposure to a major segment of the market, you'll want to focus on strong companies in that area.

Secondly, monitor these stocks until they become cheap--for example, when they go from 1 or 2 stars to 4 or 5. Granted, some of these stocks may never become cheap, but market whims ensure that most of them will at some point. That's why it pays to create watch lists. It keeps us vigilant.

To create any of the four watch lists I named above, read on. A note for folks reading this on May 21: Today we're giving away a Portfolio Assessment Guide to anyone who creates a portfolio--including one of these watch lists--on Morningstar.com. It's part of our "Portfolio Day," when we offer all users of Morningtar.com access to our Portfolio tools, including all X-Ray views, Diagnostics, and Stock Intersection, which on any other day are part of our Premium Membership package. To learn more about portfolio day, click here.

How to Create a Watch List
To monitor the stocks on any of the watch lists I've broken out below, simply:

• Click on one of the links provided. If you haven't already registered on Morningstar.com, you'll be asked to do so. (Don't worry, it's free.)
• Name your watch list.
• When the holdings pop up, click "Save Portfolio." (No need to worry about the number of shares and so on--unless you want to.)

The whole process should take about 30 seconds.

Mid-Caps with Moats: Create This Watch List
In the June issue of Morningstar StockInvestor, editor Mark Sellers is debuting a new list of mid-cap companies with wide economic moats (another term for competitive advantages). These stocks aren't necessarily cheap--quality companies rarely are--but they're perfect for a watch list. That way you can watch for those rare occasions when they do trade at a discount to fair value.

I picked out 10 of the 25 companies on the StockInvestor list to create. Stocks included: Cedar Fair (FUN), Concord EFS , Danaher (DHR), Dow Jones , First Health , Gentex (GNTX), Intuit (INTU), Guidant , Expeditors International (EXPD), and Moody's (MCO).

Bargain Financials Stocks: Create This Watch List
We don't make sector calls at Morningstar, but we do think the financial sector harbors a good number of bargains right now. Pat Dorsey, Morningstar's director of stock analysis, just wrote a piece spotlighting four stocks--each with 4-star ratings--that our analysts like in this sector.

In this watch list of financials stocks, I've included the four in Pat's article, along with some financial stocks on the Bellwether 50 list in Morningstar StockInvestor. Stocks included: J.P. Morgan Chase (JPM), Citigroup (C), FleetBoston Financial , White Mountains Insurance (WTM), Merrill Lynch , American Express (AXP), Berkshire Hathaway (BRK.B), BlackRock (BLK), Fannie Mae (FNM), and Freddie Mac (FRE).

Interesting Health Stocks: Create This Watch List
Another sector in which you can find the stocks of good companies selling for cheap prices is health. As Pat Dorsey said in a recent column, "pipelines for a lot of large pharmaceutical companies are drying up, biotechs are getting crushed after overpromising and underdelivering for the umpteenth time, and everybody loves to hate HMOs."

I created this watch list from the health stocks our analysts currently like and those that have strong economic moats. Stocks included: Amgen (AMGN), Eli Lilly & Company (LLY), Pfizer (PFE), Johnson & Johnson (JNJ), Abbott Laboratories (ABT), Bristol-Myers Squibb (BMY), ICOS , First Health Group , and Waters (WAT).

Low-Risk, High-Yield Stocks: Create This Watch List
As a glance at our highest-rated stocks shows, it's not easy to find low-risk companies selling for cheap prices. Instead, it's the high-risk fare that the market is pushing to potentially bargain levels. To keep an eye out for low-risk stocks that drift into bargain territory, here's a list of stocks that receive a Low Risk rating from our analysts and which sport a dividend yield of at least 2%. These are the kind of companies that won't pull an Enron or Global Crossing and spiral into oblivion. And the high dividend yield means you're not relying just on a rising stock price to reap a return.

Stocks included: Aegon (AEG), Albertson's , Cadberry-Schweppes (CSG), Diageo (DEO), General Mills (GIS), GlaxoSmithKline (GSK), Kellogg (K), Merck (MRK), National City , Southern (SO), SunTrust Banks .

More Reading
Four Financial Stock Picks, by Pat Dorsey

Our Favorite Bank Stocks, by Craig Woker

Five Cheap Health Stocks, by Pat Dorsey