During the first quarter, impressive stock-selection was offset by overweighted sector exposures.
Basic materials stocks have soundly underperformed the global index.
We see attractive risk-adjusted return potential in lithium producers, building materials, and uranium due to the sell-off and underperformance in the sector.
The Morningstar Wide-Moat Focus Index, which targets the cheapest, highest-quality stocks, continues to handily best its benchmark.
With our long-term metals & gold price forecasts well below consensus, most undervalued basic materials stocks offer only modest risk-adjusted upside.
Our index of the cheapest wide-moat stocks benefited from an overexposure to healthcare stocks in the third quarter.
The basic materials sector is more overvalued than any other sector, trading well above fair value, on average.
High-quality, wide-moat stocks often underperform during upward-trending markets, but the strategy is fighting against the grain.
Few basic materials stocks currently offer risk-adjusted return potential amid our negative outlook for commodity prices.
Undervalued International Flavors & Fragrances' moat is supported by both intangible assets and switching costs.
Supply disruptions and trade issues have boosted pricing across the supply chain, but stocks remain overvalued.
The quarter saw the strategy underperform the benchmark by 1.6 percentage points, pausing strong momentum over the past two years.
Tariffs will give U.S. firms a boost, but long-term demand issues are likely to weigh, and we see valuations as stretched.
Additional countries have received exemptions from the Trump administration's tariff program, but our steel and aluminum decks are unchanged on the news.
Although you'd expect wide-moat stocks to underperform during rallies like in 2017, the Wide-Moat Focus outperformed its benchmark.
We still expect the tariffs set to be imposed next week to be targeted, but a more blanket increase would have major impacts on both U.S.-based manufactures and potentially the broader economy.
Even after raising our fair value estimates, though, we still think our coverage is overpriced.
We're forecasting a decrease in demand and think the impact of capacity cuts is being overstated.
We've slightly raised our fair value estimate, but maintain a negative outlook for the broader U.S. steelmaking industry as decelerating gross capital formation in China weighs on steel prices and metal margins contract.
Some sources of moats are more potent than others.
We think a 30% price decline looms.
We see strong switching costs at International Flavors & Fragrances.
Watch: wide-moat firms have a higher return on invested capital, and trade at higher P/E multiples, than their no- and narrow-moat peers.
Protectionist trade policies aren't enough to change our long-term view.
We now expect prices to rise in 2017 before declining in real terms through our midcycle forecast.
We expect to raise our steel fair value estimates.
Concerns about the growth prospects of the aluminum company's aerospace exposure over a longer time horizon lead us to lower our fair value estimate.
The announcement of additional acquisitions remains a distinct possibility for this steelmaker, thanks to its healthy balance sheet, sizable cash position, and free cash flow generation.
We disagree with the consensus that the worst is over for steel, and expect prices to move materially lower by the end of this year.
Fundamentals indicate trouble ahead for U.S. steelmakers.
Aluminum stocks may look cheap as the consensus expects a recovery. We're far less optimistic.
Even after their shares have traded down, we see little upside.
Near-term headwinds hide attractive aerospace growth prospects.
With steel prices expected to remain lower for longer, every steelmaker in our coverage universe now operates with a no-moat rating.
Fear of energy end-market weakness provides an attractive entry point for long-term investors.
A reduction in our long-term steel price forecast has an outsize effect on more-leveraged firms.
But the upstream business holds promise for contrarians with a long-term focus.
U.S. manufacturers of coatings, lumber, and long steel products are likely to be relative winners.
Low oil prices may weigh on Carpenter's energy-industry shipments but are unlikely to disrupt its sticky aerospace business.
We think Nucor and Commercial Metals are undervalued.
As investors focus on short-term issues, we think the stock is trading at an attractive entry point, even after trimming our fair value estimate.
Short-term headwinds portend an ugly 2015 for U.S. steelmakers, but stock prices imply overly bearish long-term expectations.
But a differentiated production process at steelmakers Nucor and Ternium--both trading in 4-star territory--should better position them for the new environment.
DRI production is changing the game for undervalued Nucor.
Low-cost production and a top-line facility provide a positive moat trend to this narrow-moat company.