Investment Strategy
Tortoise Portfolio. The objective of Morningstar, Inc.’s Tortoise Portfolio is to focus on “high-quality” businesses, defined as having both durable competitive advantages and strong balance sheets. These are often well-established market leaders with economic moats (preferably wide). Morningstar’s aim for the portfolio is to generate risk-adjusted returns that outperform the S&P 500 over a full market cycle.

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.

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 accounts owned by Morningstar, Inc.
Current Issue
Past Issues
Investment Strategy
Morningstar StockInvestor is intended for self-directed investors who have not hired an investment adviser to provide advisory services and do not reflect the deduction of any advisory fees. Your subscription may only be used for your own personal, noncommercial use and not for any use on behalf of any third party. It may not be used to service, or otherwise perform work on behalf of, any brokerage, financial services or related person(s) or their clients.
Featured Posts
Roundup 12/2/22 -- Fair Value Updates for BNY Mellon, Enbridge, Salesforce, and Walt Disney
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 and updates below from Morningstar Research Services for Autodesk ADSK, Bank of New York Mellon BK, Berkshire Hathaway BRK.B, Enbridge ENB, Salesforce CRM, UnitedHealth Group UNH, and Walt Disney DIS.

Best wishes,

David Harrell,
Editor, Morningstar StockInvestor

Autodesk Sees Earlier Demand for Annual Contracts, Affecting Billings; Shares Undervalued
by Julie Bhusal Sharma | Morningstar Research Services LLC | 11-23-22

Wide-moat Autodesk reported third-quarter financial results that didn't surprise, coming right in line with our expectations all around. However, Autodesk experienced a slowdown of business in Europe and currency fluctuations, which had Autodesk missing revenue slightly on an as-reported basis. In terms of visibility, Autodesk's customers are seeing pressure within some segments, but still seeing a fairly healthy book of business over the next 12-18 months, which gives us confidence that Autodesk's near-term future is sound, along with unchanged midterm operating margin expectations. Nonetheless, the market reacted to the result negatively, falling by 9% after hours to $191 per share, which we believe is a result of lower billings guidance. However, the change of billings outlook is a factor of less demand for multiyear contracts ahead of Autodesk's more aggressive push to transition to annual contracts next year. We do not see the premature annual contract demand as concerning. As a result, we are maintaining our $230 fair value estimate, leaving Autodesk shares undervalued, in our view, which we think represents a rare buying opportunity for this high-quality stock.

Autodesk's third-quarter revenue grew 14% year over year to $1.28 billion, with particular strength in the Americas. Billings grew 16% to $1.36 billion, which was strong, but still moderated by a phenomenon that was a big topic on the earnings call: the transition to move to annual billings from multiyear contracts. The transition progressed further than expected in Europe in the quarter—a positive as Autodesk plans to more aggressively incentivize this transition in fiscal 2024, though it moderated the billings for the quarter and should temporarily depress free cash flow amid the brunt of the transition. In addition, European new business growth for the quarter was underwhelming.

Trimming BNY Mellon's Fair Value Estimate
by Rajiv Bhatia, CFA | Morningstar Research Services LLC | 11-28-22

After updating our model, we are lowering our fair value estimate for Bank of New York Mellon to $55 per share from $56 as the market downturn affects our estimates of asset-based fees partially offset by higher net interest income. Our fair value estimate equates to approximately 1.3 times book value, 2.6 times tangible book value, and approximately 13 times our 2023 GAAP EPS estimate.

Over the next five years, we expect revenue to grow at about a low- to mid-single-digit revenue CAGR. Fee revenue should benefit from lower money market fee waivers as short-term interest rates rise but will face market headwinds. We expect net interest income to rebound in 2022 and 2023 after three years of declines. We use a cost of equity of 9% and expect returns on tangible equity in the midteens to low 20s in our base case.

Berkshire Hathaway Deserves More Credit for the Investments It's Made This Year
by Greggory Warren, CFA | Morningstar Research Services LLC | 11-24-22

For much of the past decade, investors have bemoaned the fact that wide-moat Berkshire Hathaway has made few meaningfully sized acquisitions, allowing excess cash to build up on its balance sheet. But now that the insurer is on pace to commit $12 billion to acquisitions and another $53 billion to stock investments this year, the market seems to be shrugging it off, worried more about the gyrations of the investment portfolio and ongoing weakness at Geico and BNSF relative to peers, as opposed to the positives coming from a lot of the firm's other subsidiaries, as well as the benefits we expect Berkshire to extract from Alleghany now that it is part of its broader operations.

We continue to believe Berkshire is best positioned to get the most value out of Alleghany—something we don't feel the market fully appreciates. While Berkshire's shares have outperformed the broader market this year, up 4.0% since the start of 2022 relative to a 15.6% decline for the S&P 500 TR Index and a 16.8% decline for the Morningstar US Market TR Index, they continue to trade at a meaningful discount to our fair value estimate. We believe a fair amount of that discount is due to the market not giving Berkshire full enough credit for the Alleghany acquisition, as well as the capital the insurer has committed to equities this year.

At a base level, the Alleghany acquisition is a good deal for Berkshire. And should the firm avoid unforeseen underwriting issues, leverage its scale, resources and expertise to boost growth and profitability for both the insurance and noninsurance operations, reallocate the acquired company's investment portfolio to higher returning options in relatively short order, and put a fair amount of capital to work in bolt-on deals (bringing more of a "push" mentality to the pursuit of acquisitions as opposed to the "pull" mentality that has prevailed for decades in Berkshire's corporate suite), then it could end up being a really lucrative deal.

Enbridge's 2023 Outlook Is a Modest Negative; Lowering Our Fair Value Estimate
by Stephen Ellis | Morningstar Research Services LLC | 11-30-22

Enbridge's 2023 outlook was more mixed than anything else. 2023 EBITDA guidance of a midpoint of CAD 16.2 billion is close to our unchanged expectations of CAD 16.3 billion. However, interest expense is expected to increase to CAD 3.9 billion, materially above our earlier forecast, and capital spending of CAD 6 billion is CAD 1 billion above our estimates. The higher spending is reducing near-term cash flows and thus caused us to modestly reduce our fair value estimates. Our fair value estimates are now CAD 52 ($38) per share, down from CAD 53 ($39). Our narrow moat rating is unchanged. Enbridge also increased the dividend 3% as expected. While Enbridge highlighted plans to buy back stock potentially, we don't expect excess cash flow from the firm until 2026, implying buybacks are likely to increase debt levels.

Growth in 2023 across the business is weighted heavily toward liquids pipelines, gas transmission, and gas distribution. The growth should allow Enbridge to come close to meeting its leverage guidance of below 4.75 times in 2023, as we model about 4.8 times. Enbridge also announced that it is working toward developing a carbon dioxide sequestration hub in Corpus Christi with Oxy Low Carbon Ventures, which adds to its energy transition credentials.

Strong Profitability for Salesforce, but Demand Environment Is Not Improving; FVE Cut to $220
by Dan Romanoff, CPA | Morningstar Research Services LLC | 12-01-22

For its fiscal third quarter, Salesforce delivered modest upside relative to our revenue expectations and more meaningfully outperformed our margin estimate despite foreign currency headwinds that continue to worsen. Fiscal fourth-quarter guidance, however, was slightly shy of our model. Sales cycle elongation and deal size compression that began in July intensified this quarter, while management commented they expect these conditions to persist into next year. We lowered our estimates for fiscal 2024 in anticipation of a persistently challenging macro environment and then also made some minor related smoothing adjustments to our model. As a result, we are lowering our fair value estimate for wide-moat Salesforce to $220, from $240 previously. On the positive side, management stated the firm continues to build a healthy sales pipeline, and the company bought back 11 million shares for $1.7 billion. Salesforce remains one of our top software picks and we applaud the company's increasing focus on margins along with the newly implemented $10 billion buyback program.

Salesforce also announced co-CEO Bret Taylor was leaving the company. We believe Salesforce has a deep bench given global operations, a massive sales organization, a leading engineering team, and a variety of leaders from acquired companies that the firm could elevate should it feel the need to do so. In the meantime, founder and co-CEO Marc Benioff remains at the helm, so there is little immediate change other than Salesforce once again does not have an immediate succession plan.

Revenue grew 14% year over year (19% in constant currency) to $7.84 billion, compared with FactSet consensus of $7.83 billion. Current remaining performance obligations, or CRPO, grew 15% year over year in constant currency, which lagged revenue growth for the fifth straight quarter, and further supports our downward estimate revisions.

UnitedHealth Guides Slightly Below Our Expectations at Investor Day; No FVE Change
by Julie Utterback, CFA | Morningstar Research Services LLC | 11-29-22

At its annual investor meeting, UnitedHealth maintained its 2022 guidance and gave its initial outlook for 2023, both of which are still slightly below our expectations. While we may tinker with our near-term assumptions a bit based on the company's investor day announcements, our $426 fair value estimate will likely not change materially. The company's narrow-moat rating appears intact as well, which is a similar view that we have for all of the managed care companies we cover. Although these companies appear to be benefiting from a benign period of policy risk, currently, our narrow moat ratings reflect the long-term policy risks that could eventually emerge, particularly in medical insurance and pharmacy benefit management.

UnitedHealth largely reiterated the 2022 guidance given by management in mid-October. For example, it is still aiming for adjusted EPS of $21.85-$22.05 in 2022, or 15%-16% growth, which is at the high end of its long-term goal of 13%-16% growth. That guidance is slightly below our current expectation for 2022, but even if we were to lower that assumption slightly, our fair value estimate, which is determined by much longer-term cash flow expectations, would not change significantly.

Also, the company gave an initial outlook for 2023 that appears similar to management's comments in October about previous consensus ($24.83 on FactSet) likely being at the top end of its initial guidance range. Since UnitedHealth has regularly outperformed initial expectations, we remain comfortable expecting a bit more out of the company on the bottom line than management's initial guidance. Specifically, we expect slightly higher adjusted EPS than the company's initial guidance range of $24.40-$24.90, which would reflect about 12% year-over-year growth at the midpoint of both ranges and slightly higher operating cash flow than the company's initial guidance of $27 billion-$28 billion for 2023.

A Fair Value Reduction for Walt Disney
by Neil Macker, CFA | Morningstar Research Services LLC | 12-02-22

Our updated $155 fair value estimate for Disney (reduced from $170), reflects the realigned segments and lower losses from streaming. We expect average annual top-line growth of 7% through fiscal 2027. We now project losses for the streaming segment to continue through fiscal 2024, linear advertising to decline over the next five years, and a continual decline in linear networks margins. We project average annual sales growth from the linear television networks to be just under 1% from fiscal 2023-27 (2% for affiliate fees and negative 1.5% for advertising) as our projections for U.S. pay-TV penetration assumes an ongoing decline. The loss of subscribers at ESPN and other pay-TV channels will be offset by price increases domestically.

----------------------------------------------------------------------

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.

©2022 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. and/or, where applicable, its affiliates.

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 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.


Net Composite Performance
Composite Portfolios

The Tortoise and Hare strategies are managed by Morningstar Investment Management LLC. Morningstar Investment Management’s subsidiary offers these strategies through a discretionary investment advisory service (“Advisory Service”). The “Net of Fees” performance shown reflects a composite of accounts invested in accordance with the strategy through the Advisory Service. Net returns include the deduction of actual advisory and transaction fees incurred by clients.

 
Customer Support
Product Support
Inquiries regarding your subscription such as address changes, missing/damaged issues, etc.
Phone: 1-800-957-6021 | Mon-Fri 8:30AM-5:00PM
Inquiries regarding technical issues such as logging in or downloading
Phone: 1-312-424-4288 | Mon-Fri 8AM-6PM
E-mail: newslettersupport@morningstar.com
Product Sales
Inquiries regarding your subscription renewal, billing or to learn about other Morningstar investment publications and resources
Phone: 1-866-608-9570 | Monday-Friday 8AM-5PM CST
E-mail: newslettersupport@morningstar.com
Contact Your Editor
 
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 accounts owned by Morningstar, Inc. 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

Michael Corty, CFA, is the Head of U.S. Equity Strategies and a Portfolio Manager for Morningstar Investment Management LLC. Michael joined the group as a portfolio manager in December 2013.

Previously, he was a senior equity analyst in Morningstar, Inc.'s equity research department where he also served as a voting member of the economic moat committee. Michael holds a bachelor's degree from Loyola Marymount University and an MBA from Johnson Graduate School of Management at Cornell University.

John Owens, CFA, is a Senior Portfolio Manager with Morningstar Investment Management LLC. John joined the group as a portfolio manager in January 2009.

Previously, John was a senior equity analyst and investing specialist within Morningstar, Inc.'s equity research department. He holds a bachelor's degree in accounting from Oklahoma State University and an MBA from the University of Texas at Austin.

Investment Strategy



Tortoise Portfolio. The Tortoise targets undervalued companies that possess durable competitive advantages (as measured by their Morningstar Economic Moat Rating) and strong balance sheets.

Hare Portfolio. The Hare focuses on companies with strong and growing competitive advantages (as measured by their Morningstar Economic Moat Rating). It uses a “growth at a reasonable price” approach, seeking companies with above-average earnings-per-share growth whose shares are trading at reasonable multiples of earnings.