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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.

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
Investor Days for Lowe's and WPP

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 below from Morningstar Research Services for Enbridge ENB, Lowe's LOW, and WPP WPP.

Best wishes,

David Harrell,
Editor, Morningstar StockInvestor

Enbridge Announces 10% Dividend Hike; Shares Remain Deeply Undervalued
by Joe Gemino, CPA | Morningstar Research Services LLC | 12-11-18

Wide-moat Enbridge held its 2018 investor day and announced a 10% dividend increase, as expected. On an annualized basis, the 2019 dividend stands at CAD 2.95 per share, representing a 6.9% yield. Many investors feared that Enbridge wouldn't be able to meet its targeted increase, but we feel comfortable that the company can make its payments with its distributable cash flow coverage of 1.65 times the dividend payments.

Enbridge also announced 2019 guidance that included adjusted EBITDA of CAD 13 billion and distributable cash flow of CAD 8.9 billion. Both targets are in line with our expectations. The company continues to expect Line 3 to be placed into service in the back half of 2019, slightly ahead of our first-quarter 2020 expectations. Construction is 80% complete in Canada, and Enbridge expects it to be fully completed by July 2019. Enbridge is also continuing its negotiations on the Mainline tolling agreement but did not give a detailed update due to ongoing discussions with shippers. As a reminder, the current agreement expires in 2021, but Enbridge is using the current uncertainty associated with future egress to lock in future cash flows on the Mainline.

We are maintaining our $47 (CAD 62) fair value estimate and wide moat rating. Our long-term thesis remains intact, and we see tremendous upside in the stock. We expect Enbridge to easily meet its 10% average annual dividend growth target through 2020 while maintain a healthy distributable cash flow. We consider Enbridge a rare triple threat, boasting a wide moat, an attractive 6.9% dividend yield, and a cheap valuation. We think the time is right for long-term investors to capitalize on the stock's considerable upside while collecting a steady stream of growing income.

Lowe's Investor Day Focuses on Restoring Efficiency Across the Business; Shares Fairly Valued
by Jaime M. Katz, CFA | Morningstar Research Services LLC | 12-13-18

Wide-moat Lowe's held its biannual investor day on Dec. 12, offering investors insight into upcoming initiatives the management team plans to undertake to restore profit growth. In our opinion, the most significant changes to the business are set to come in both the supply chain and in technology upgrades that underlie an increase in capital expenditures in 2019 (to $1.6 billion from $1.2 billion in 2018). The supply chain changes (costing $1.7 billion in total over the next five years) are set to improve responsiveness and generate more appropriate channel fulfillment and delivery strategies, focusing on the expansion of the bulk distribution network (to more than 20 locations from 11), and cross dock delivery terminals (to 90 longer term from five) and another direct fulfillment center (to two from one). As such, we'd expect these efforts on the supply chain to help improve working capital metrics as inventory turnover increases, bolstered by improved in-stock positions, faster inventory flow, and more appropriate and predictable delivery schedules.

Furthermore, Lowe's is doubling-down on financing technology initiatives, about $500 million per year through 2021, hiring more than 2,000 engineers to execute projects internally on lowes.com, the supply chain, merchandising, administration, and other facets of the firm. Between supply chain and IT spending, near-term free cash flow could be pressured as the company invests to restore its best-in-class positioning in the home improvement industry. But longer term, such efforts should lead to better profitability, and we now forecast an operating margin that reaches 11.4% over our outlook, versus below 11% prior, still short of management's 12% long-term target. Returns on invested capital rise to 30% at the end of our forecast, also just short of Lowe's 35% long-term goal. With modest upside to our prior model expected, we plan to increase our $94 fair value by about $4, and view shares as fairly valued.

WPP Remains on Track for a Turnaround; Shares Undervalued
by Ali Mogharabi | Morningstar Research Services LLC | 12-11-18

Our takeaway from WPP's analyst day was positive, as the narrow-moat firm appears to be taking the right steps to return to organic growth in North America and expand overall margins. Under the leadership of Mark Read, the firm is taking the route that its peers have already taken--integrating technology know-how with the differentiating creativity expertise. WPP also provided some color on the impact of its strategy two to three years down the road. By the end of 2021, the firm expects organic growth to return to levels of its peers (from organic decline this year) and operating margin to hit nearly 15%, up from our 2018 and 2019 estimates of 11% and 10%, respectively. While these figures are above our 2021 projections, we did not make any adjustments to our model, as we believe risks related to WPP's client mix remain. Our long-term positive view on the firm has not changed, and we are maintaining our GBX 1,450 per share fair value estimate. (Editor's note: the fair value estimate for the ADR shares was reduced from $93 to $91.) While investing in this turnaround name requires patience, we continue to view WPP shares as attractive given the current 0.58 price/fair value. We must also note that, in line with our assumption, WPP's dividend appears to be safe as the firm said it is committed to maintain it at current levels, which is yielding 7%.


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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.

©2018 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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