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Stocks 406: Using Morningstar's Rating for Stocks

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1.
Which Uncertainty Rating requires the largest discount (margin of safety) for a stock to become rated 5 stars?
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Very high. Stocks with an Uncertainty Rating of Very High require the largest discount to Morningstar's Fair Value Estimate before they become rated 5 stars.
2.
The Morningstar Rating for a stock can change for which of the following reasons?
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A combination of any of these factors. Any one or several of these factors can cause a change in the rating.
3.
When Morningstar Ratings for stocks change, the changes are usually based on _______.
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Changes in stock prices. The assessments don't change much, but the stock prices naturally do.
4.
What does Morningstar prefer to use to value stocks?
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Future profits. Using future profits is easier to understand and requires less context than using ratios.
5.
The Morningstar Fair Value Estimate represents which of the following?
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An estimate of how much a stock should be worth today based on how much cash flow the company is expected to generate in the future. Morningstar's Fair Value Estimate represents how much a stock should be worth today based on how much cash flow the company is expected to generate in the future. The Morningstar Fair Value Estimate should not be confused with a target price, which is how much the market might be willing to pay for a stock. To arrive at a fair value, Morningstar analysts use a detailed discounted cash-flow model that factors in projections for the company's income statement, balance sheet, and cash-flow statement. It is not adding projected earnings growth to a stock's current trading price.