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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 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
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Trade Alert, 4/22/19 -- Adding to ANTM in Hare

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. In this trade alert, all mentions of “the Hare” refer to Morningstar, Inc.’s portfolio.

This morning, I used some of the Hare's cash on hand to buy another 35 shares of Anthem ANTM at $242.53 per share, increasing the position's weighting to 3.1%. Hare also owns a 2.6% position in UnitedHealth UNH, so the portfolio's combined weighting to the managed care industry has increased to 5.7%.

All managed care stocks have been under pressure in the past few months as "Medicare for All" has become a mainstream policy position among several Democratic candidates for President. There are good arguments on both sides of the debate as to whether the U.S. would be better off with a single-payer system. However, as an investor, I'm less interested in what should happen in theory than in what is likely to happen in practice. While Medicare for All would be a potentially catastrophic outcome for private health insurers like Anthem, I still think it's a very low-probability risk.

The biggest impediment to Medicare for All is the cost: One study "conservatively" estimated the cost at more than $32 trillion over 10 years. Funding that level of spending would require approximately doubling federal personal income and payroll taxes. Employers would be able to eliminate their employer-sponsored health benefits, but it's not clear if those savings would flow through to workers in the form of higher wages, to help offset the workers' increased tax burden. That cost estimate also assumed that healthcare providers would agree to be paid at Medicare rates, which are usually well below commercial rates, for all patients. One person's expense is another person's income, so I would expect substantially all of the entrenched interests in healthcare--insurers, hospitals, doctors, pharmaceutical firms, and so on--to spend heavily on advertising and lobbying against Medicare for All.

They will likely be joined by the entire Republican Party, which has little incentive to support Medicare for All, especially after the Affordable Care Act contributed to major Republican gains in the 2010 midterm election. Given that political reality, Medicare for All probably doesn't stand a chance unless the Democrats win the Presidency, the Senate, and the House of Representatives in the 2020 election. They would also have to choose a far-left candidate like Bernie Sanders in the presidential primary, change the filibuster rules in the Senate, and convince a decent number of moderate Democrats from conservative-leaning states to pass a Medicare for All bill. It's not impossible, but I view such an outcome as a very low-probability risk--the kind of "black swan" event that could happen to any of the Hare's holdings. In any case, the outcome of this debate won't be known for years, which will likely cause Anthem's stock to be volatile in the lead-up and aftermath of the 2020 election.

Meanwhile, fundamental developments at Anthem have been positive since my initial purchase in February 2018. First, while negative headlines have caused the stock to trade at approximately the same level, the valuation looks significantly more appealing today thanks to recent and anticipated earnings growth. The price/earnings ratio has fallen to 12.7 from 15.7. A new Morningstar analyst also took a fresh look at the company, and now assigns the stock a fair value estimate of $306 per share, up from $182. Second, as time has passed, I've gained confidence in the turnaround plans of CEO Gail Boudreaux, who had only been on the job a few months at the time of my initial purchase. Management recently held an investor day at which it predicted approximately 20% annual earnings per share growth in 2019 and 2020, followed by 12%-15% annual growth through 2023. The near term should be helped by in-sourcing the firm's pharmacy benefit management contract, while the longer term will benefit from underlying healthcare spending growth, membership gains, reduced administrative costs, and share repurchases. Setting aside the regulatory risks, I don't know of many economically defensive businesses trading for such a reasonable P/E with the potential for midteens EPS growth.


Matt Coffina, CFA
Portfolio Manager, Hare Strategy
Morningstar Investment Management LLC


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The Morningstar Rating for Stocks is a forward-looking, analyst-driven measure of a stock's current price relative to the analyst's estimate of what the shares are worth. Stock star ratings indicate whether a stock, in the equity analyst's educated opinion, is cheap, expensive, or fairly priced. To rate a stock, an analyst estimates what he or she thinks it is worth (its "fair value"), using a detailed, long-term cash flow forecast for the company. A stock's star rating depends on whether its current market price is above or below the fair value estimate. Those stocks trading at large discounts to their fair values receive the highest ratings (4 or 5 stars). Stocks trading at large premiums to their fair values receive lower ratings (1 or 2 stars). A 3-star rating means the current stock price is fairly close to the analyst's fair value estimate. 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.

Unless otherwise noted, data included in this alert is taken from the subject company’s reports or other public materials.

Matthew Coffina, CFA, owns all of the Hare stocks in his personal accounts.

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