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The Short Answer

Why Wide-Moat Stocks Can Carry High Uncertainty

Impregnable competitive advantages don't necessarily guarantee predictable cash flows.

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Question: How can a wide-moat stock, such as Swatch (SWGAY), have a high uncertainty rating? If a company has a wide moat, how can there be uncertainty in the calculation of the intrinsic value?

Answer: While the Morningstar Economic Moat Rating and Uncertainty Rating are related, these independent measures gauge different things. As a result, wide-moat stocks can earn high uncertainty ratings. In fact, about one fourth of all wide-moat stocks earn uncertainty ratings of high or greater today.

Susan Dziubinski does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.