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Stocks 406: Using Morningstar's Rating for Stocks

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1.
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.
2.
What is a drawback of using ratios (such as price/earnings ratio or price/book ratio) to value stocks?
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They require context to understand. For example, there may be a disconnect between the ratio and the market price of the stock.
3.
The Morningstar Rating for stocks _______.
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Is analyst-driven. Morningstar estimates a company's fair value by determining how much it would pay today for all the streams of excess cash generated by the company in the future. It arrives at this value by forecasting a company's future financial performance using a detailed discounted cash-flow model that factors in projections for the company's income statement, balance sheet, and cash-flow statement. The result is an analyst-driven estimate of the stock's fair value.
4.
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.
5.
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.