Morningstar Runs the Numbers
We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended April 27.
Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.
Wide moat-rated Microsoft (MSFT) reported third-quarter results that came in far ahead of management's prior guidance and senior equity analyst Rodney Nelson's expectations, as the company saw strong growth across each of its key product franchises. On the cloud front, Azure delivered its 15th consecutive quarter of triple-digit premium services growth, while Office 365 commercial revenue grew 42% in the quarter, Nelson said. He plans to raise Microsoft's fair value estimate to $117 per share from $106 and views the shares as attractive.
Rising interest rates have held back returns in most domestic bond categories in 2018, but the bank-loan category is in the black for the year to date. Fixed-income manager research analyst Brian Moriarty discusses some of the performance drivers and four of our analysts' picks in the category.
It isn't easy for a fund to earn a Morningstar Analyst Rating of Gold. The fund must rate highly on nearly all five Pillars: People, Process, Price, Parent, and Performance. The manager has to be experienced, and the supporting team must also have sufficient experience, skill, and stability. Director of manager research Russ Kinnel profiles five funds that we recently upgraded to Gold.
While precision, strength, and unwavering stamina are vital to athletic careers, what sets apart the world's greatest athletes comes down to underlying values that have nothing to do with sports, says motivational speaker and New York Times bestselling author Don Yaeger. According to CNBC, as a Sports Illustrated journalist Yaeger met many sports legends, including football player Walter Payton and basketball coach John Wooden; he said the best among them all exhibited these four traits.
Morningstar equity analysts' opinions of whether a stock is undervalued or overvalued often don't jibe with consensus opinion. Sometimes a majority of Wall Street analysts thinks a stock is a strong buy, but our analysts aren't quite as bullish. The average analyst price targets for these four companies indicate that the consensus views the stocks as fairly valued or even a bit undervalued. But Morningstar analysts believe the same stocks are very overvalued.
Morningstar senior manager research analyst Patty Oey published a study of U.S. open-end mutual funds' and exchange-traded funds' expense ratios. She found that the asset-weighted average fee across funds was 0.52% in 2017, an 8% decline from 2016. This is the largest year-over-year decline we have recorded since we began tracking the trend in asset-weighted average fees in 2000. Consequently, we estimate that investors saved roughly $4 billion in fund expenses last year. This fee decline is a big positive for investors because fees compound over time and diminish returns, Oey said.
One of the takeaways from Amazon (AMZN) CEO Jeff Bezos' shareholder letter is that U.S. Prime membership base prices will increase to $119 from $99 beginning in May. Consumer strategist R.J. Hottovy thinks this price increase, as well as the strong growth in small/medium businesses sellers (including 300,000 new sellers last year), will provide healthy revenue streams in the years to come. Hottovy is planning to raise the wide-moat company's fair value estimate. Even after the post first-quarter rally, he thinks the shares are modestly undervalued.
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