The Morningstar Rating for stocks can help investors uncover stocks that are truly undervalued, cutting through the market noise.
The rating is determined by three factors: a stock's current price, Morningstar's estimate of the stock's fair value, and the uncertainty rating of the fair value. The bigger the discount, the higher the star rating. Four- and 5-star ratings mean the stock is undervalued, while a 3-star rating means it's fairly valued, and 1- and 2-star stocks are overvalued. When looking for investments, a 5-star stock is generally a better opportunity than a 1-star stock.