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Stock Strategist

Morningstar's 10 Worst Value Destroyers

The holes these companies are digging get deeper each year.

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Last week I highlighted 10 "value creators." These companies throw off lots of cash and generate returns on invested capital (ROIC) well above their weighted average cost of capital (WACC). Over the next several years, we think their fair values will rise as they create value for shareholders. These are the types of companies we love to hold in the Tortoise and Hare Portfolios.

On the opposite side of the coin is another batch of companies called "value destroyers." These firms usually appear undervalued, but they're cheap for good reason: They generate negative risk-adjusted returns on capital, so the more they try to grow, the worse off they are. And because they're likely to destroy shareholder value in coming years, their fair values will fall. We'd avoid adding these types of companies to the Tortoise and Hare at almost any price.

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

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