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Hare Portfolio. The objective of Morningstar, Inc.’s Hare Portfolio is to seek long-term capital appreciation ahead of the S&P 500 Index, focusing on companies with strong and growing competitive advantages. Morningstar is willing for the Hare to accept greater risk in exchange for higher total return potential.

About the Editor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios invested in accordance with a strategy that seeks to focus on companies with stable or growing competitive advantages. David served in several senior research and product development roles and was part of the editorial team that created and launched Morningstar.com. He was the co-inventor of Morningstar's first investment advice software.

David joined Morningstar in 1994. He holds a bachelor's degree in biology from Skidmore College and a master's degree in biology from the University of Illinois at Springfield.

Our Portfolio Managers

Matthew Coffina, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Hare strategy. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

Michael Corty, CFA, is the portfolio manager for Morningstar Investment Management LLC’s Tortoise strategy. Before focusing his attention on the Tortoise, Michael co-managed five equity strategies offered by Morningstar Investment Management LLC and Morningstar Investment Services LLC since December 2013. Michael was previously a senior equity analyst on Morningstar Inc.’s equity research team covering companies in the media, business services, and consumer industries. Michael also spent several years on Morningstar’s moat committee, which assigns economic moat and moat trend ratings to their global coverage.

Prior to joining Morningstar in 2004, Michael worked at a public accounting firm and in the business lending arm of a major commercial bank. He has an undergraduate accounting degree from Loyola Marymount University, an MBA from Cornell University and is a CFA charterholder.

 
Dec 18, 2017
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About the Editor David Photo
David Harrell
Editor, Morningstar StockInvestor
David Harrell is the editor of the Morningstar StockInvestor, a monthly newsletter that focuses on a wide-moat stock investing strategy. For illustration purposes, issues highlight activities pertaining to Morningstar, Inc. portfolios
Featured Posts
Roundup 12/15/2017 -- Second-Quarter Results for Oracle

StockInvestorSM focuses on the activities of portfolios of Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies. These portfolios are managed by Morningstar Investment Management LLC, a registered investment adviser, which manages other client portfolios using these strategies.

Please see new analyst notes from Morningstar Research Services for Enbridge ENB and Oracle ORCL below. The former is a new addition to the Hare portfolio -- Matt Coffina's trade alert from Thursday is here. Also below is a general note about the Fed's decision to raise its target for the federal funds rate by 25 basis points.

Best wishes,

David Harrell,
Editor, Morningstar StockInvestor

Enbridge Holds Investor Day; We Still See Nearly 30% Upside in the Stock
by Joe Gemino, CPA | Morningstar Research Services LLC | 12-13-17

On Dec. 12, wide-moat Enbridge held its Enbridge Investor Day, and there were no surprises. The highlights of the investor meeting were previewed in the company's late November strategic plan announcement. As a reminder, On Nov. 29, wide-moat Enbridge announced 10% dividend growth in 2018. The firm also announced that it intends to increase its dividend at the same 10% rate through 2020, which is the period covered in its new strategic plan. These announcements are in line with our previous expectations of dividend growth. The stock now yields a healthy 5.4% (after the recent rally in the stock price), which sits above the average in the Canadian midstream sector. Enbridge also plans to sell certain noncore assets as it sets its sights on deleveraging the balance sheet. Enbridge is targeting asset sales of approximately CAD 3 billion in 2018 and has identified another CAD 7 billion in assets available for potential future sales.

After updating our model, we are maintaining our $50 (CAD 64) fair value estimate. We are decreasing our fair value uncertainty rating to medium from high as the range of outcomes has narrowed, highlighted by the integrity replacement status associated with the Line 3 Replacement project. Since the pre-announcement in late November, the stock has rallied over 7%, with shares currently trading near $39 (CAD 50). Despite the recent rally, we still see 30% upside in the stock, while on average, the Canadian midstream sector looks fairly valued. We think the market doesn't realize the full potential of Enbridge's growth portfolio, which is highlighted by the Line 3 replacement project. Investors appear skeptical that the project will obtain its final approval amid continued protests and opposition. We believe that the project will obtain the remaining approval from the state of Minnesota, which we think will serve as a catalyst for the stock.

Oracle's Lackluster 2Q Cloud Growth Places Even More Pressure on 2H Results; Maintain FVE
by Rodney Nelson | Morningstar Research Services LLC | 12-14-17

Oracle delivered second-quarter results that modestly outstripped our expectations from a total revenue and earnings perspective. However, Oracle's IaaS/PaaS business delivered paltry results, while management offered a middling growth outlook for the firm's consolidated cloud business. We maintain our view that Oracle's convoluted IaaS/PaaS stacks up poorly with rivals such as Amazon and Microsoft, and we continue to view management's five-year target of $10 billion in annual IaaS/PaaS as unrealistic in our base case. We are maintaining our wide moat rating and $46 fair value estimate. Shares are retreating more than 7% on the heels of these results and have fallen nearly 17% since mid-September, but we think investors should seek a wider margin of safety before investing in the name.

Second-quarter revenue rose roughly 6% from the prior-year period to $9.6 billion, ahead of our estimate. The revenue beat was largely characterized by greater-than-expected license sales, driven in part by Oracle's bring-your-own-license, or BYOL, model where customers can renew licenses and bring software to Oracle's public cloud offering. While this is a short-term victory for Oracle, we question how effective the BYOL model will be long term. By and large, moving technologies to the cloud is viewed as a cost savings initiative, but considering Oracle's stated effort to upsell BYOL customers to subsequent licensing add-ons such as autonomous database while continuing to enforce maintenance contracts, it is unclear if customers will in fact generate any savings deploying its software in this manner. While management insists that providing customers as much variety as possible is a positive, our long-term concern is that this strategy further opens the door for native SaaS vendors such as Salesforce and Workday to make inroads into Oracle's customer base.

Low Inflation Readings Aren't Enough to Knock the Fed Off Course
by Jim Sinegal | Morningstar Research Services LLC | 12-14-17

The Federal Reserve chose to raise its target for the federal funds rate by 25 basis points to 1.25%-1.5% as the central bank weighed the strength of the employment market and continued growth in household spending and business investment more heavily than lackluster inflation readings. The Federal Reserve sees the risks of inflation and underemployment as roughly balanced at the moment but believes monetary policy is still accommodative enough to boost inflation back to its 2% target over the medium term. The path to rate normalization is proceeding in line with our expectations, and our fair value estimates for banks and other companies dependent on the yield curve will not change as a result. The median long-run federal funds rate estimate remains 2.8%, consistent with our long-run interest rate forecasts.

We think the fact that the Federal Reserve is tightening policy--raising the federal funds rate and shrinking its balance sheet--ahead of rising inflation limits the risk that the central bank will find itself behind the curve in an environment of rising inflation. Indeed, there is a case to be made that monetary policy helped inflate asset bubbles in the late 1990s (stock prices) and mid-2000s (housing). On the other hand, mixed data on wage growth, low inflation readings, and the lack of upward movement in long-term rates support a cautious approach to tightening. It's worth noting that Fed chair nominee Jerome Powell voted in line with Chair Janet Yellen and the majority of his Fed governor peers at the latest Federal Open Market Committee meeting. We expect Powell to continue Yellen's cautious, data-driven approach to policy rather than risk the long economic recovery with aggressive actions.

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*Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. Analyst ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst ratings are based on Morningstar’s analysts’ current expectations about future events and therefore involve unknown risks and uncertainties that may cause such expectations not to occur or to differ significantly from what was expected. Analyst ratings are not guarantees nor should they be viewed as an assessment of a stock's creditworthiness. Ratings, analysis, and other analyst thoughts are provided for informational purposes only; references to securities should not be considered an offer or solicitation to buy or sell the securities.

©2017 Morningstar, Inc. All rights reserved. The Morningstar name and logo are registered marks of Morningstar, Inc. The information contained in this document is the proprietary material of Morningstar, Inc. Reproduction, transcription, or other use, by any means, in whole or in part, without the prior written consent of Morningstar, Inc., is prohibited. All data presented is based on the most recent information available to Morningstar, Inc. as of the release date and may or may not be an accurate reflection of current data.  There is no assurance that the data will remain the same.

Disclosure:
The commentary, analysis, references to, and performance information contained within Morningstar® StockInvestorSM, except where explicitly noted, reflects that of portfolios owned by Morningstar, Inc. that are invested in accordance with the Tortoise and Hare strategies managed by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. References to "Morningstar" refer to Morningstar, Inc.

Opinions expressed are as of the current date and are subject to change without notice. Morningstar, Inc. and Morningstar Investment Management LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions or their use. This commentary is for informational purposes only and has not been tailored to suit any individual.

The information, data, analyses, and opinions presented herein do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. Please note that references to specific securities or other investment options within this piece should not be considered an offer (as defined by the Securities and Exchange Act) to purchase or sell that specific investment.

This commentary contains certain forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.

Investments in securities are subject to investment risk, including possible loss of principal.  Prices of securities may fluctuate from time to time and may even become valueless.  Securities in this report are not FDIC-insured, may lose value, and are not guaranteed by a bank or other financial institution. Before making any investment decision, investors should read and consider all the relevant investment product information. Investors should seriously consider if the investment is suitable for them by referencing their own financial position, investment objectives, and risk profile before making any investment decision. There can be no assurance that any financial strategy will be successful.

Common stocks are typically subject to greater fluctuations in market value than other asset classes as a result of factors such as a company's business performance, investor perceptions, stock market trends and general economic conditions.

All Morningstar Stock Analyst Notes were published by Morningstar, Inc. The Weekly Roundup contains all Analyst Notes that relate to holdings in Morningstar, Inc.'s Tortoise and Hare Portfolios. Morningstar's analysts are employed by Morningstar, Inc. or its subsidiaries.  In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission.

David Harrell may own stocks from the Tortoise and Hare Portfolios in his personal accounts.

 
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