LARGE CAP GLOBAL CORE PICK LIST MAY 2019 - MEDIRECT
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Large Cap Global Core Pick List
May 2019
Editor’s Note: We are revamping our pick lists to create In the consumer cyclical sector, we added MGM Resorts Elizabeth Collins, CFA
Global Head of Equity and Corporate Credit
a more user-friendly resource for investment ideas. We International MGM ($38 fair value estimate) as we removed
Research
welcome any thoughts you have on aspects of our pick LKQ LKQ ($38 fair value estimate). Analyst Dan Wasiolek
Daniel Rohr, CFA,
lists you find most useful and what you’d like to see. details:
Director of Equity Research, North America
Ultimately, we want to know how you use our lists so that
Lorraine Tan, CFA
we can better serve your needs. Please submit feedback to “After its Profit Growth Plan drove $500 million in cost Director of Equity Research, Asia-Pacific
arc@morningstar.com. savings over 2015-17 (exceeding initial targets of $300
Alex Morozov, CFA
million), MGM reiterated its goal to drive $300 million Director of Equity Research, Europe
Sector Valuations in domestic EBITDA uplift from end of 2018 through
Patrick Dunn
The market appears fairly valued, with the market-capital- 2021, driven by labor, procumbent, sales, digital, and Director of Global Research Operations
ization-weighted average, uncertainty-adjusted price/fair loyalty optimization. MGM has formed 18 center of
value ratio for S&P 500 index constituents that are under excellence teams, or COEs, to set business strategy for
This list surfaces large-cap global stocks within
active Morningstar research coverage at 101% as of April 30, specific areas (like food or gaming floor layout) across each sector that we believe warrants consideration.
slightly higher than last month’s ratio of 100%. all properties, allowing for faster implementation (fewer Selection criteria are based on uncertainty-adjusted
layers) and increased ability for property managers to price/fair value ratios. The above-mentioned selec-
tion criteria are applied against all constituents of
The S&P 500 rose by 3.93% in April, closing at 2,945.83 at focus on guest engagement.” the Morningstar rated universe.
the end of the month. Each of the 11 sectors appears fully
Important Disclosure
valued, based on an uncertainty-adjusted price/fair value In the consumer defensive sector, we omitted Ambev ABEV
The conduct of Morningstar’s analysts is governed
basis. The utilities sector was the most expensive, trading ($5.50 fair value estimate), while adding Walgreens Boots by Code of Ethics/Code of Conduct Policy, Personal
at 109% of fair value. The energy sector was the cheapest, Alliance WBA ($73 fair value estimate). Analyst Karen Security Trading Policy (or an equivalent of),
and Investment Research Policy. For information
trading at 93% of fair value. Please refer to the table later in Andersen comments:
regarding conflicts of interest, please visit:
the report for more details on sector valuation. http://global.morningstar.com/equitydisclosures
“Walgreens has been one of the most successful retail
As of April 30, the Global Large Cap Pick List was priced operators since its founding in 1901 and has remained
at 82% of fair value. Consumer defensive constituents pre- a major player within the pharmaceutical supply chain
sented the greatest opportunity, with a market-capitalization- for many decades. The firm processed approximately
weighted average price/fair value near 77%. 20% of total U.S. prescriptions during fiscal 2017,
which makes it one of the largest retail pharmacies.
Portfolio Commentary: Changes With the acquisition of Europe-based Alliance Boots,
We made numerous changes to the list this month. Begin- the firm is now a premier global retail powerhouse.
ning in the consumer services sector, we added shares of Nevertheless, we believe Walgreens faces a pressured
CenturyLink CTL ($20 fair value estimate). Correspondingly, operating environment, given the rapidly growing pric-
we removed KDDI KDDIY ($15 fair value estimate). Analyst ing power of the large pharmacy benefit managers.”
Matthew Dolgin notes:
Turning to the financial-services sector, we added shares
“CenturyLink’s fiber holdings make it one of the biggest of Alliance Data Systems ADS ($220 fair value estimate).
communications infrastructure providers in the U.S., We dropped KeyCorp KEY ($21 fair value estimate). Analyst
and its extensive network is matched by few other Colin Plunkett notes:
companies. While it is not the leader in the space,
and we don’t expect it to close much ground on the “It should not be underestimated how high the switch-
top players, the growing importance of our connected ing costs are for retailers using Alliance Data Systems
world gives us confidence that CenturyLink’s network as their private-label card and loyalty program provid-
will remain vital.” ers. Private-label cards are store-issued credit cards
that consumers can use only at the issuing store. WhenMorningstar Equity Research | Large Cap Global Core Pick List | May 2019
retailers hire Alliance Data Systems to provide their Dynamics GD (currently under review), Fluor FLR ($46 fair
private-label credit card, they are, in effect, outsourc- value estimate, down from $50 after accounting for more
ing their entire customer care and much of their digital conservative midcycle operating margins), and Fanuc FANUY
marketing to Alliance. In fact, Alliance Data Systems ($22 fair value estimate). We added Canon CAJ ($33 fair
will not work with any retailer that does not hand over value estimate), Johnson Controls International JCI ($46
these functions. This is important because if Alliance’s fair value estimate), and Caterpillar CAT ($169 fair value
retail partners want to cancel their agreement, they estimate) in their place. Analyst Scott Pope explains:
would have to construct their own customer service
and digital marketing apparatus, which could take “Caterpillar’s wide moat rests heavily on its intan-
several years.” gible assets, which include the strength of its brand
and extensive dealer network that covers the globe.
In the healthcare sector, McKesson MCK ($130 fair value Interbrand ranked Caterpillar as the world’s 89th most
estimate, down from $210), Cardinal Health CAH ($55 fair valuable brand, worth $4.9 billion. The strength of the
value estimate, down from $82), and AmerisourceBer- brand is boosted by the large amount of Caterpillar
gen ABC ($86 fair value estimate, down from $106) were branded clothing and boots available on mainstream
removed from the list after we reevaluated their fair value online channels such as Amazon. To a lesser extent,
estimates in light of the evolving competitive and regulatory there is highly specific intellectual property that en-
environment in the pharmaceutical distribution segment. We hances the moat. Caterpillar stresses the lowest total
replaced these names with UnitedHealth UNH ($300 fair cost of ownership, which we believe to be thoroughly
value estimate), Medtronic MDT ($110 fair value estimate), engineered into its equipment, exists from design
and Pfizer PFE ($46 fair value estimate). Analyst Debbie through manufacture.”
Wang details:
Concerning the real estate sector, we added shares of Simon
“We’re pleased to see Medtronic’s diabetes franchise Property Group SPG ($195 fair value estimate). We dropped
has a closed-loop insulin pump coming into view. The Vornado Realty Trust VNO ($76 fair value estimate). Analyst
concept of an artificial pancreas has been around for a Kevin Brown notes:
long time in healthcare, and Medtronic’s 670g hybrid
closed loop took one major step toward realizing the “Simon Property Group, the largest mall real estate in-
goal for Type I diabetics. However, even the 670g vestment trust and second-largest U.S. REIT, manages
required the pump user to intervene with the release one of the top retail portfolios in the country. It owns
of insulin following meals or exercising. Now, the and operates Class A traditional regional malls and
next-gen 780g is expected in fiscal 2020, and it would premium outlets in markets with dense populations and
take another significant step toward closing the loop, high incomes; these malls frequently have domestic or
that is, acting like a healthy pancreas that adjusts the international tourist appeal. The high-quality properties
release of insulin with minimal input from the patient. will continue to provide consumers with unique shop-
This means the management of insulin could be further ping experiences that are hard to replicate elsewhere,
tailored to individual patients, and theoretically, this and as a result, we think Simon’s portfolio will be
would keep blood glucose in healthier ranges more of sought after by retailers that are increasingly pursuing
the time, which would minimize the long-term com- an omnichannel strategy.”
plications of diabetes. The firm’s deep expertise and
expansive data that goes into creating the algorithms In the technology sector, Sony SNE ($55 fair value estimate),
in this device, along with its integration of Medtronic’s NXP Semiconductors NXPI ($115 fair value estimate), and
Guardian Connect continuous glucose monitors, will Microchip MCHP ($112 fair value estimate) were removed
make it difficult for competitors such as Tandem to from the list. We replaced these names with Palo Alto Net-
become a serious threat.” works PANW ($305 fair value estimate), F5 Networks FFIV
($181 fair value estimate), and Western Digital WDC ($63
In the industrials sector, we removed shares of General fair value estimate). Analyst Mark Cash details:
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 2
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
“We believe F5 can capitalize on enterprises requiring realize significant cost savings from the closure of its
software to deploy and manage workloads securely existing data centers, we are increasing our fair value
across multiple clouds and on-premises, while 5G and estimate to $133 per share from $119. Management
NFV can catalyze the service provider segment, and stated that in 2021, once it fully migrates its operations
the Nginx acquisition opens the developer market side to Amazon Web Services, it expects to achieve an op-
of applications. For next quarter, management guided erating efficiency ratio of 42%, a more than 300-basis-
a revenue range of $550 million-$560 million and a point improvement from 2018. To put this in perspec-
non-GAAP EPS range of $2.54-$2.57. Guidance does tive, this implies that Capital One will achieve pretax
not include any impact from the Nginx acquisition that costs savings in the neighborhood of $1 billion. For
is expected to close in the second calendar quarter of now, our fair value estimate translates into a price/book
2019. We expect the top line to be achieved through value of 1.2 and is 10.6 times our 2020 estimate. Over
continued software strength, tempered system sales the next five years, we forecast credit card receivables
declines, and service growth; also, we posit F5 can to grow on average by 3%-3.5%. This includes growth
achieve the bottom-line target while ramping up devel- from the Walmart portfolio acquisition and includes our
opment costs.” expectation that a recession will occur at some point
over the next five years.”
Fair Value Changes
We made two significant fair value changes this month
among the list’s remaining constituents. In the technology
sector, we lowered the fair value estimate for Nokia NOK to
$7.20 per share from $8. Analyst Mark Cash comments:
“After decreasing our margin profile for Nokia in the
long term, we are lowering our fair value estimate to
$7.20 per share from $8 (EUR 6.50 from EUR 7) and
view the company as undervalued after the under-
whelming quarter. Gross margin declined year over
year to 31.4% from 36.7% while operating margin
declined to a loss of 10.4% versus a loss of 6.8% in
the year before. Margin declines were predominantly
due to higher product costs and trial costs associated
with launching new technologies for 5G, legacy radio
product pressures, not releasing software on time,
and cost overruns for services, which we think are
near-term headwinds. Nokia did reel in selling, general,
and administrative costs, which fell 2.7% year over
year, and research and development decreased 1%.
Additional increased short-term costs are expected
as carriers turn to Nokia to run trials due to security
concerns (which we interpret as carriers contemplating
Huawei alternatives).”
In the financial-services sector, we raised the fair value
estimate for Capital One Financial COF to $133 per share
from $119. Analyst Colin Plunkett comments:
“After Capital One’s announcement that it expects to
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 3
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Adjusted Price/Fair Value Ratio
Lower Upper
Attractiveness Bound Bound Notes
Cheap 0.000 0.800 Assets are trading at or below Morningstar’s “Consider Buying” price.
Undervalued 0.801 0.900 Assets are trading above Morningstar’s “Consider Buying” price, but are still at a discount to our fair value estimate.
Fully Valued 0.901 1.100 Assets are trading within a band that is not materially different from Morningstar’s fair value estimate.
Overvalued 1.101 1.250 Assets are trading above Morningstar’s fair value estimate, but are still below our “Consider Selling” price.
Expensive 1.251 — Assets are trading at or above Morningstar’s “Consider Selling” price.
Fair Value Per Sector
S&P Sector Weight Sector P/V Pick List P/V
Sector (%) (%) (%)
Basic Materials 2.11 100.14 79.58
Communication Services 3.17 98.40 85.52
Consumer Cyclical 11.97 102.79 83.24
Consumer Defensive 7.45 104.55 77.42
Energy 5.12 93.44 85.35
Financial Services 14.88 99.98 88.53
Healthcare 13.18 98.80 84.22
Industrials 9.50 104.02 89.81
Real Estate 2.19 102.32 91.61
Technology 23.14 100.65 88.08
Utilities 3.16 108.96 94.69
Largest Negative and Positive Price Movements During April
End Price Per Share Return
Company Ticker Beg. Price Per Share (USD) (USD) (%)
Albemarle ALB 81.98 75.06 -8.44
Nokia Oyj ADR NOK 5.72 5.28 -7.69
Imperial Brands ADR IMBBY 34.57 32.00 -7.43
Macerich MAC 43.35 40.14 -7.40
L Brands LB 27.58 25.64 -7.03
Mattel MAT 13.00 12.19 -6.23
British American Tobacco ADR BTI 41.72 39.20 -6.04
AmerisourceBergen ABC 79.52 74.76 -5.99
Intel INTC 53.70 51.04 -4.95
Roche Holding ADR RHHBY 34.39 33.06 -3.87
Volkswagen ADR VWAPY 15.73 17.38 10.52
UBS Group UBS 12.11 13.44 10.98
KeyCorp KEY 15.75 17.55 11.43
Siemens ADR SIEGY 53.75 60.00 11.63
Daimler DDAIF 58.57 65.74 12.24
Capital One Financial COF 81.69 92.83 13.64
Credit Suisse Group ADR CS 11.65 13.30 14.16
Sony ADR SNE 42.24 50.37 19.25
NXP Semiconductors NXPI 88.39 105.62 19.49
Microchip Technology MCHP 82.96 99.89 20.41
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 4
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Large Cap Global Core Picks (Data as of April 30, 2019)
Economic Uncertainty Current Price Fair Value Adj. Price/ Morningstar Market Cap Relative
Company Ticker Moat™ Rating (USD) (USD) Fair Value Rating (USD Mil) Industry Attractiveness
Basic Materials—Cheap
Albemarle ALB Narrow High 75.06 130 0.79 QQQQ 7,947.80 Specialty Chemicals Cheap
Communication Services—Undervalued
Vodafone Group ADR VOD Narrow High 18.52 33 0.78 QQQQQ 49,442.19 Telecom Services Cheap
Telefonica ADR TEF Narrow High 8.30 15 0.79 QQQQQ 43,159.80 Telecom Services Cheap
BT Group ADR BT Narrow High 15.09 23 0.83 QQQQ 29,390.18 Telecom Services Undervalued
CenturyLink CTL None Very High 11.42 20 0.83 QQQQ 12,453.06 Telecom Services Undervalued
Consumer Cyclical—Undervalued
Hanesbrands HBI Narrow Medium 18.07 27 0.78 QQQQQ 6,531.78 Apparel Manufacturing Cheap
Mattel MAT Narrow High 12.19 21 0.79 QQQQQ 4,210.73 Leisure Cheap
Fiat Chrysler Automobiles FCAU None Very High 15.41 32 0.79 QQQQQ 30,372.47 Auto Manufacturers Cheap
L Brands LB Narrow High 25.64 42 0.81 QQQQ 7,056.47 Apparel Stores Undervalued
Nissan Motor ADR NSANY None High 16.04 26 0.81 QQQQ 31,270.42 Auto Manufacturers Undervalued
Bayerische Motoren Werke ADR BMWYY Narrow High 28.39 44 0.82 QQQQ 55,235.64 Auto Manufacturers Undervalued
Volkswagen ADR VWAPY None High 17.38 26 0.83 QQQQ 88,368.16 Auto Manufacturers Undervalued
Daimler DDAIF None High 65.74 96 0.84 QQQQ 69,754.48 Auto Manufacturers Undervalued
Volkswagen ADR VWAGY None High 17.88 26 0.84 QQQQ 88,368.16 Auto Manufacturers Undervalued
MGM Resorts International MGM None High 26.63 38 0.85 QQQQ 14,304.48 Resorts & Casinos Undervalued
Expedia Group EXPE Narrow High 129.84 183 0.85 QQQQ 19,321.19 Leisure Undervalued
Consumer Defensive—Cheap
British American Tobacco ADR BTI Wide Low 39.20 59 0.66 QQQQQ 88,686.46 Tobacco Cheap
Imperial Brands ADR IMBBY Wide Low 32.00 48 0.67 QQQQQ 30,137.38 Tobacco Cheap
Kraft Heinz KHC None Medium 33.24 60 0.70 QQQQQ 40,534.01 Packaged Foods Cheap
Anheuser-Busch InBev ADR BUD Wide Low 88.94 118 0.75 QQQQQ Beverages - Brewers Cheap
173,445.05
Walgreens Boots Alliance WBA None Medium 53.57 73 0.82 QQQQ 48,979.00 Pharmaceutical Retailers Undervalued
Kellogg K Wide Medium 60.30 78 0.85 QQQQ 20,726.25 Packaged Foods Undervalued
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 5
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Large Cap Global Core Picks (Data as of April 30, 2019)
Total Return Total Return Div. Div. Div. EPS Est.
52 Week 52 Week YTD 1-Yr Per Share Yield % Yield % Growth % Forward
Company Ticker High Low (Daily) (Daily) TTM Current Forward Mean 5-Yr EPS Est.
Basic Materials
Albemarle ALB 108.74 71.89 -2.13 -21.17 1.34 1.83 1.96 12.87 6.70
Communication Services
Vodafone Group ADR VOD 29.60 17.05 -3.94 -31.11 1.85 9.40 5.89 14.67 1.17
Telefonica ADR TEF 10.21 7.70 -1.89 -13.62 0.46 5.63 5.49 17.74 0.97
BT Group ADR BT 17.38 13.53 -0.72 -6.89 1.06 6.43 6.43 4.63 1.86
CenturyLink CTL 24.20 11.40 -22.97 -28.47 2.16 16.37 8.76 -3.22 1.16
Consumer Cyclical
Hanesbrands HBI 22.57 11.57 45.41 1.08 0.60 3.32 3.32 8.46 1.87
Mattel MAT 17.98 9.09 22.02 -17.64 0.00 — — 10.00 0.36
Fiat Chrysler Automobiles FCAU 23.29 14.01 11.61 -26.07 — 4.70 4.70 2.74 4.09
L Brands LB 38.14 23.71 1.05 -20.54 2.40 8.19 4.68 7.55 2.65
Nissan Motor ADR NSANY 21.22 15.28 0.60 -21.45 1.02 6.14 6.23 2.53 2.57
Bayerische Motoren Werke ADR BMWYY 37.36 25.33 5.27 -19.02 1.54 5.53 5.53 5.32 4.11
Volkswagen ADR VWAPY 43.50 14.97 10.59 -55.62 0.88 5.39 3.16 -5.07 3.38
Daimler DDAIF 80.97 50.64 24.58 -16.51 0.00 6.84 — 2.13 9.43
Volkswagen ADR VWAGY 20.87 14.70 14.58 -9.74 0.44 2.58 3.08 -5.07 3.38
MGM Resorts International MGM 33.68 21.62 10.31 -13.69 0.48 1.84 1.95 26.52 1.91
Expedia Group EXPE 139.77 108.11 15.54 13.86 1.24 0.97 0.99 15.28 7.72
Consumer Defensive
British American Tobacco ADR BTI 55.77 30.67 25.16 -23.37 2.57 6.77 6.88 4.92 4.23
Imperial Brands ADR IMBBY 38.87 28.70 7.64 -5.33 2.30 7.60 10.65 7.92 3.50
Kraft Heinz KHC 64.99 31.53 -21.84 -37.01 2.50 6.84 4.81 3.39 2.93
Anheuser-Busch InBev ADR BUD 106.86 64.55 35.15 -7.84 3.30 3.71 2.28 14.37 4.90
Walgreens Boots Alliance WBA 86.31 52.25 -20.96 -16.79 1.72 3.21 3.29 4.30 6.51
Kellogg K 74.98 53.14 6.75 6.15 2.20 3.68 3.71 4.79 4.14
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 6
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Large Cap Global Core Picks (Data as of April 30, 2019)
Economic Uncertainty Current Price Fair Value Adj. Price/ Morningstar Market Cap Relative
Company Ticker Moat™ Rating (USD) (USD) Fair Value Rating (USD Mil) Industry Attractiveness
Energy—Undervalued
Energy Transfer ET None Medium 15.12 22 0.79 QQQQQ 39,605.20 Oil & Gas Midstream Cheap
Enterprise Products Partners EPD Wide Low 28.63 36 0.81 QQQQ 62,552.94 Oil & Gas Midstream Undervalued
Total ADR TOT None Medium 55.67 77 0.82 QQQQ 144,943.20 Oil & Gas Integrated Undervalued
MPLX Partnership Units MPLX Narrow Medium 32.26 44 0.82 QQQQ 25,619.56 Oil & Gas Midstream Undervalued
Marathon Petroleum MPC Narrow High 60.87 89 0.84 QQQQ 40,944.28 Oil & Gas Refining & Marketing Undervalued
Financial Services—Undervalued
American International Group AIG None Medium 47.57 76 0.75 QQQQQ 41,373.36 Insurance - Diversified Cheap
Mitsubishi UFJ Financial Group ADR MUFG None Medium 4.96 7 0.80 QQQQ 63,613.70 Banks - Global Cheap
Capital One Financial COF Narrow Medium 92.83 133 0.80 QQQQ 43,592.97 Credit Services Cheap
UBS Group UBS Narrow High 13.44 21 0.82 QQQQ 51,715.49 Banks - Global Undervalued
Credit Suisse Group ADR CS Narrow High 13.30 20 0.83 QQQQ 33,448.19 Banks - Global Undervalued
ING Groep ADR ING None Medium 12.76 17 0.83 QQQQ 49,458.68 Banks - Global Undervalued
Alliance Data Systems ADS Narrow High 160.10 220 0.86 QQQQ 8,386.21 Credit Services Undervalued
Wells Fargo WFC Wide Medium 48.41 60 0.87 QQQQ 218,423.39 Banks - Global Undervalued
Healthcare—Undervalued
CVS Health CVS Narrow Medium 54.38 92 0.73 QQQQQ 70,607.27 Health Care Plans Cheap
Bayer ADR BAYRY Wide High 16.79 31 0.77 QQQQQ 61,894.00 Drug Manufacturers - Major Cheap
Roche Holding ADR RHHBY Wide Low 33.06 42 0.79 QQQQQ 224,606.26 Drug Manufacturers - Major Cheap
DaVita DVA Narrow Medium 55.24 79 0.80 QQQQQ 9,191.79 Medical Care Cheap
Bristol-Myers Squibb BMY Wide Medium 46.43 65 0.81 QQQQ 75,945.82 Drug Manufacturers - Major Undervalued
Cigna CI Narrow High 158.84 231 0.84 QQQQ 60,307.15 Health Care Plans Undervalued
Biogen BIIB Wide High 229.24 327 0.85 QQQQ 44,448.12 Drug Manufacturers - Major Undervalued
UnitedHealth Group UNH Wide Medium 233.07 300 0.85 QQQQ 221,939.63 Health Care Plans Undervalued
AbbVie ABBV Narrow Medium 79.39 102 0.85 QQQQ 117,351.50 Drug Manufacturers - Major Undervalued
Celgene CELG Narrow Medium 94.66 120 0.86 QQQQ 66,759.87 Drug Manufacturers - Major Undervalued
Medtronic MDT Wide Medium 88.81 110 0.87 QQQQ 119,107.62 Medical Devices Undervalued
Pfizer PFE Wide Low 40.61 46 0.88 QQQQ 225,458.79 Drug Manufacturers - Major Undervalued
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 7
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Large Cap Global Core Picks (Data as of April 30, 2019)
Total Return Total Return Div. Div. Div. EPS Est.
52 Week 52 Week YTD 1-Yr Per Share Yield % Yield % Growth % Forward
Company Ticker High Low (Daily) (Daily) TTM Current Forward Mean 5-Yr EPS Est.
Energy
Energy Transfer ET 19.19 11.68 16.77 3.42 1.22 8.07 8.07 3.54 1.65
Enterprise Products Partners EPD 30.05 23.33 19.98 13.13 1.72 6.06 6.11 7.49 2.07
Total ADR TOT 65.69 49.70 8.06 -6.45 2.90 5.21 5.15 14.41 6.20
MPLX Partnership Units MPLX 39.01 28.32 8.61 -1.53 2.49 7.84 8.15 12.07 2.73
Marathon Petroleum MPC 88.45 54.29 4.05 -16.19 1.84 3.14 3.48 11.86 8.20
Financial Services
American International Group AIG 56.79 36.16 21.52 -12.77 1.28 2.69 2.69 12.33 5.13
Mitsubishi UFJ Financial Group ADR MUFG 6.75 4.64 1.85 -24.29 0.19 3.78 3.78 3.40 0.70
Capital One Financial COF 101.26 69.90 23.34 4.20 1.60 1.72 1.72 0.20 12.18
UBS Group UBS 16.94 11.61 8.56 -16.14 0.66 4.83 5.22 13.90 1.44
Credit Suisse Group ADR CS 17.17 10.23 22.47 -19.14 0.26 1.95 1.99 20.60 1.49
ING Groep ADR ING 16.91 10.21 19.70 -22.38 0.68 5.54 5.54 3.40 1.62
Alliance Data Systems ADS 250.27 142.58 7.10 -20.00 2.28 1.46 1.57 13.69 22.41
Wells Fargo WFC 59.53 43.02 6.03 -3.56 1.64 3.51 3.72 7.30 5.23
AbbVie ABBV 121.45 75.77 -12.89 -28.18 3.59 4.98 5.40 14.59 8.66
Healthcare
CVS Health CVS 82.15 51.77 -15.48 -19.26 2.00 3.68 3.68 6.73 7.25
Bayer ADR BAYRY 32.80 15.67 0.05 -38.50 0.80 4.70 4.70 7.65 2.19
Roche Holding ADR RHHBY 34.98 26.30 9.83 22.79 1.05 3.25 3.25 4.20 2.50
DaVita DVA 79.11 48.25 7.35 -12.02 — — — 15.67 4.86
Bristol-Myers Squibb BMY 63.69 44.30 -9.10 -7.83 1.62 3.49 3.53 11.82 4.63
Cigna CI 226.61 141.95 -16.34 -7.53 0.04 0.03 0.03 10.21 18.42
Biogen BIIB 388.67 216.12 -23.82 -16.21 — — — 0.60 30.04
UnitedHealth Group UNH 287.94 208.07 -6.08 0.11 3.45 1.54 1.54 12.08 16.58
AbbVie ABBV 107.25 75.77 -11.56 -13.57 3.59 5.11 5.39 3.80 9.50
Celgene CELG 95.44 58.59 47.70 8.68 — — — 9.53 13.96
Medtronic MDT 100.15 78.29 -1.81 13.33 1.96 2.25 2.25 9.65 5.47
Pfizer PFE 46.47 34.37 -6.14 14.70 1.36 3.40 3.55 3.74 3.06
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 8
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to,
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Large Cap Global Core Picks (Data as of April 30, 2019)
Economic Uncertainty Current Price Fair Value Adj. Price/ Morningstar Market Cap Relative
Company Ticker Moat™ Rating (USD) (USD) Fair Value Rating (USD Mil) Industry Attractiveness
Industrials—Undervalued
Siemens ADR SIEGY Narrow Medium 60.00 78 0.85 QQQQ 96,708.85 Diversified Industrials Undervalued
Rolls-Royce Holdings ADR RYCEY Narrow Medium 12.11 15 0.87 QQQQ 22,524.47 Aerospace & Defense Undervalued
ABB ABB Wide Medium 20.66 25 0.88 QQQQ 43,844.87 Diversified Industrials Undervalued
Stericycle SRCL Narrow High 58.39 77 0.88 QQQQ 5,300.17 Waste Management Undervalued
Canon ADR CAJ None Medium 27.68 33 0.89 QQQQ 29,858.03 Business Equipment Undervalued
Emerson Electric EMR Wide Medium 70.99 83 0.90 QQQQ 43,631.86 Diversified Industrials Fully Valued
Johnson Controls International JCI Narrow High 37.50 46 0.91 QQQQ 34,117.41 Engineering & Construction Fully Valued
Caterpillar CAT Wide High 139.42 169 0.91 QQQQ 79,730.89 Farm & Construction Equipment Fully Valued
Real Estate—Fully Valued
Macerich MAC Narrow High 40.14 57 0.85 QQQQ 5,669.12 REIT - Retail Undervalued
Simon Property Group SPG Narrow Medium 173.70 195 0.93 QQQ 53,672.19 REIT - Retail Fully Valued
Technology—Undervalued
Baidu ADR BIDU Wide High 166.23 262 0.82 QQQQ 58,072.36 Internet Content & Information Undervalued
Intel INTC Wide Medium 51.04 65 0.86 QQQQ 228,506.08 Semiconductors Undervalued
DXC Technology DXC None High 65.74 91 0.86 QQQQ 17,636.15 Information Technology Services Undervalued
Nokia Oyj ADR NOK None High 5.28 7 0.87 QQQQ 29,300.09 Communication Equipment Undervalued
Tencent Holdings ADR TCEHY Wide High 49.24 64 0.88 QQQQ 470,901.57 Internet Content & Information Undervalued
Activision Blizzard ATVI Narrow High 48.21 62 0.89 QQQQ 36,928.73 Electronic Gaming & Multimedia Undervalued
Palo Alto Networks PANW Narrow High 248.83 305 0.91 QQQQ 23,618.19 Software - Application Fully Valued
F5 Networks FFIV Narrow Medium 156.90 181 0.91 QQQQ 9,366.15 Software - Infrastructure Fully Valued
Skyworks Solutions SWKS Narrow High 88.18 105 0.92 QQQ 15,255.28 Semiconductors Fully Valued
Western Digital WDC None Very High 51.12 63 0.92 QQQQ 14,868.30 Data Storage Fully Valued
Utilities—Fully Valued
Dominion Energy D Wide Low 77.87 84 0.93 QQQQ 62,249.14 Utilities - Diversified Fully Valued
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 9
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to,
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Large Cap Global Core Picks (Data as of April 30, 2019)
Total Return Total Return Div. Div. Div. EPS Est.
52 Week 52 Week YTD 1-Yr Per Share Yield % Yield % Growth % Forward
Company Ticker High Low (Daily) (Daily) TTM Current Forward Mean 5-Yr EPS Est.
Industrials
Siemens ADR SIEGY 70.90 51.51 10.87 -1.99 2.15 3.62 3.62 3.89 4.61
Rolls-Royce Holdings ADR RYCEY 14.55 9.50 16.73 4.09 0.15 1.26 1.55 -21.00 0.46
ABB ABB 24.72 18.05 8.68 -11.22 0.00 4.00 3.89 11.19 1.38
Stericycle SRCL 71.43 34.36 59.14 -0.55 — — — 7.60 3.85
Canon ADR CAJ 34.78 26.37 0.29 -15.12 1.45 5.21 5.21 -0.06 2.04
Emerson Electric EMR 79.70 55.39 19.63 9.83 1.95 2.75 2.76 9.14 4.06
Johnson Controls International JCI 40.33 28.30 27.35 13.79 1.04 2.77 2.77 11.79 3.10
Caterpillar CAT 161.60 112.06 11.07 -1.04 3.28 2.47 2.47 16.66 12.97
Real Estate
Macerich MAC 60.95 39.71 -5.52 -25.16 2.97 7.42 7.47 -7.52 0.36
Simon Property Group SPG 191.49 152.50 4.62 16.22 7.90 4.61 4.72 6.76 7.66
Technology
Baidu ADR BIDU 284.22 153.78 4.81 -33.75 — — — 9.73 9.31
Intel INTC 59.59 42.36 9.43 1.23 1.22 2.38 2.47 6.54 4.62
DXC Technology DXC 96.75 49.19 24.00 -27.02 0.75 1.16 1.16 6.11 8.73
Nokia Oyj ADR NOK 6.65 5.07 -9.28 -8.21 0.23 4.48 4.48 15.94 0.43
Tencent Holdings ADR TCEHY 54.84 31.54 24.75 0.46 0.11 0.23 0.26 19.50 1.81
Activision Blizzard ATVI 84.68 39.85 4.32 -26.78 0.34 0.77 0.77 7.58 2.33
Palo Alto Networks PANW 260.63 160.08 32.11 29.26 — — — 19.86 6.33
F5 Networks FFIV 199.71 148.91 -3.17 -3.80 — — — 9.39 11.24
Skyworks Solutions SWKS 104.20 60.12 32.14 3.32 1.40 1.66 1.72 11.23 7.47
Western Digital WDC 88.62 33.83 39.63 -32.58 2.00 3.91 3.91 -3.48 5.61
Utilities
Dominion Energy D 77.91 61.53 10.25 22.13 3.34 4.40 4.71 5.87 4.42
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 10
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to,
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Fair Value Changes
Old Fair Value New Fair Value Change
Company Ticker (USD) (USD) (%)
McKesson MCK 210 130 -38.10
Cardinal Health CAH 82 55 -32.93
AmerisourceBergen ABC 106 86 -18.87
Nokia Oyj ADR NOK 8 7.20 -10.00
Fluor FLR 50 46 -8.00
Wells Fargo WFC 65 60 -7.69
KeyCorp KEY 22 21 -4.55
Volkswagen ADR VWAGY 26.50 26 -1.89
Volkswagen ADR VWAPY 26.50 26 -1.89
Capital One Financial COF 119 133 11.76
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investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 11
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to,
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Research Four key components drive the Morningstar rating: (1) our
assessment of the firm’s economic moat, (2) our estimate
Methodology for
of the stock’s fair value, (3) our uncertainty around that fair
value estimate and (4) the current market price. This process
ultimately culminates in our single-point star rating.
Valuing Companies Economic Moat
Overview The concept of an economic moat plays a vital role not
At the heart of our valuation system is a detailed projection only in our qualitative assessment of a firm’s long-term
of a company’s future cash flows, resulting from our investment potential, but also in the actual calculation of
analysts’ research. Analysts create custom industry and our fair value estimates. An economic moat is a structural
company assumptions to feed income statement, balance feature that allows a firm to sustain excess profits over a
sheet, and capital investment assumptions into our globally long period of time. We define economic profits as returns
standardized, proprietary discounted cash flow, or DCF, on invested capital (or ROIC) over and above our estimate of
modeling templates. We use scenario analysis, in-depth a firm’s cost of capital, or weighted average cost of capital
competitive advantage analysis, and a variety of other (or WACC). Without a moat, profits are more susceptible to
analytical tools to augment this process. Moreover, we think competition. We have identified five sources of economic
analyzing valuation through discounted cash flows presents moats: intangible assets, switching costs, network effect,
a better lens for viewing cyclical companies, high-growth cost advantage, and efficient scale.
firms, businesses with finite lives (e.g., mines), or companies
expected to generate negative earnings over the next few Companies with a narrow moat are those we believe are
years. That said, we don’t dismiss multiples altogether but more likely than not to achieve normalized excess returns for
rather use them as supporting cross-checks for our DCF- at least the next 10 years. Wide-moat companies are those in
based fair value estimates. We also acknowledge that DCF which we have very high confidence that excess returns will
models offer their own challenges (including a potential remain for 10 years, with excess returns more likely than not
proliferation of estimated inputs and the possibility that the to remain for at least 20 years. The longer a firm generates
method may miss short-term market-price movements), but economic profits, the higher its intrinsic value. We believe
we believe these negatives are mitigated by deep analysis low-quality, no-moat companies will see their normalized
and our long-term approach. returns gravitate toward the firm’s cost of capital more
quickly than companies with moats.
Morningstar’s equity research group (we”, “our”) believes
that a company’s intrinsic worth results from the future To assess the sustainability of excess profits, analysts
cash flows it can generate. The Morningstar Rating for perform ongoing assessments of the moat trend. A firm’s
stocks identifies stocks trading at a discount or premium to moat trend is positive in cases where we think its sources of
their intrinsic worth—or fair value estimate, in Morningstar competitive advantage are growing stronger; stable where
terminology. Five-star stocks sell for the biggest risk-adjusted we don’t anticipate changes to competitive advantages over
discount to their fair values, whereas 1-star stocks trade at the next several years; or negative when we see signs of
premiums to their intrinsic worth. deterioration.
Morningstar Equity Research Star Rating Methodology
Price
Economic Moat Stewardship Fair Value Morningstar
Morningstar
RatingTM For Stocks
Financial Health Moat Trend Fair Value Uncertainty QQQQQ
Fundamental Analysis Valuation Margin of Safety
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 12
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Estimated Fair Value value and that any new investment provides a return in line
Combining our analysts’ financial forecasts with the firm’s with estimated WACC.
economic moat helps us assess how long returns on invested
capital are likely to exceed the firm’s cost of capital. Returns Because a dollar earned today is worth more than a dollar
of firms with a wide economic moat rating are assumed to earned tomorrow, we discount our projections of cash flows
fade to the perpetuity period over a longer period of time in stages I, II, and III to arrive at a total present value of
than the returns of narrow-moat firms, and both will fade expected future cash flows. Because we are modeling free
slower than no-moat firms, increasing our estimate of their cash flow to the firm—representing cash available to provide
intrinsic value. a return to all capital providers—we discount future cash
flows using the WACC, which is a weighted average of the
Our model is divided into three distinct stages: costs of equity, debt, and preferred stock (and any other
funding sources), using expected future proportionate long-
Stage I: Explicit Forecast term, market-value weights.
In this stage, which can last five to 10 years, analysts make
full financial statement forecasts, including items such as Uncertainty around that fair value estimate
revenue, profit margins, tax rates, changes in working-capital Morningstar’s Uncertainty Rating captures a range of likely
accounts, and capital spending. Based on these projections, potential intrinsic values for a company and uses it to assign
we calculate earnings before interest, after taxes (EBI) and the margin of safety required before investing, which in turn
the net new investment (NNI) to derive our annual free cash explicitly drives our stock star rating system. The Uncertainty
flow forecast. Rating represents the analysts’ ability to bound the
estimated value of the shares in a company around the Fair
Stage II: Fade Value Estimate, based on the characteristics of the business
The second stage of our model is the period it will take the underlying the stock, including operating and financial
company’s return on new invested capital—the return on leverage, sales sensitivity to the overall economy, product
capital of the next dollar invested (“RONIC”)—to decline concentration, pricing power, and other company-specific
(or rise) to its cost of capital. During the Stage II period, we factors.
use a formula to approximate cash flows in lieu of explicitly
modeling the income statement, balance sheet, and cash Analysts consider at least two scenarios in addition to
flow statement as we do in Stage I. The length of the second their base case: a bull case and a bear case. Assumptions
stage depends on the strength of the company’s economic are chosen such that the analyst believes there is a 25%
moat. We forecast this period to last anywhere from one probability that the company will perform better than the bull
year (for companies with no economic moat) to 10–15 years case, and a 25% probability that the company will perform
or more (for wide-moat companies). During this period, worse than the bear case. The distance between the bull
cash flows are forecast using four assumptions: an average and bear cases is an important indicator of the uncertainty
growth rate for EBI over the period, a normalized investment underlying the fair value estimate.
rate, average return on new invested capital (RONIC), and
the number of years until perpetuity, when excess returns Our recommended margin of safety widens as our
cease. The investment rate and return on new invested uncertainty of the estimated value of the equity increases.
capital decline until a perpetuity value is calculated. In The more uncertain we are about the estimated value of
the case of firms that do not earn their cost of capital, we the equity, the greater the discount we require relative
assume marginal ROICs rise to the firm’s cost of capital to our estimate of the value of the firm before we would
(usually attributable to less reinvestment), and we may recommend the purchase of the shares. In addition, the
truncate the second stage. uncertainty rating provides guidance in portfolio construction
based on risk tolerance.
Stage III: Perpetuity
Once a company’s marginal ROIC hits its cost of capital,
we calculate a continuing value, using a standard perpetuity
formula. At perpetuity, we assume that any growth or decline
or investment in the business neither creates nor destroys
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 13
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
Our uncertainty ratings for our qualitative analysis are low, basis, and the star rating is automatically re-calculated at the
medium, high, very high, and extreme. market close on every day the market on which the stock is
listed is open. Our analysts keep close tabs on the companies
× Low–margin of safety for 5-star rating is a they follow, and, based on thorough and ongoing analysis,
20% discount and for 1-star rating is 25% premium. raise or lower their fair value estimates as warranted.
× Medium–margin of safety for 5-star rating is a
30% discount and for 1-star rating is 35% premium. Please note, there is no predefined distribution of stars. That
× High–margin of safety for 5-star rating is a is, the percentage of stocks that earn 5 stars can fluctuate
40% discount and for 1-star rating is 55% premium. daily, so the star ratings, in the aggregate, can serve as a
× Very High–margin of safety for 5-star rating is a gauge of the broader market’s valuation. When there are
50% discount and for 1-star rating is 75% premium. many 5-star stocks, the stock market as a whole is more
× Extreme–margin of safety for 5-star rating is a undervalued, in our opinion, than when very few companies
75% discount and for 1-star rating is 300% premium. garner our highest rating.
Morningstar Equity Research Star Rating Methodology
4.5
4.5 Q
QQ
QQQ
4.0 400% QQQQ
4.0 QQQQQ
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0 200%
175%
1.5 155%
1.5
135%
125% 125%
110% 115%
1.0 105%
1.0 95% 90%
80% 85% 80%
Price/Fair Value
70%
60%
0.5
0.5 50% 50%
25%
0.0
0.0 Low Medium High Very High Extreme
Uncertainty Uncertainty Uncertainty Uncertainty Uncertainty
Market Price We expect that if our base-case assumptions are true the
The market prices used in this analysis and noted in the market price will converge on our fair value estimate
report come from exchange on which the stock is listed over time, generally within three years (although it is
which we believe is a reliable source. impossible to predict the exact time frame in which market
prices may adjust).
For more details about our methodology, please go to
www.global.morningstar.com/equitydisclousures. Our star ratings are guideposts to a broad audience
and individuals must consider their own specific investment
Morningstar Star Rating for Stocks goals, risk tolerance, tax situation, time horizon,
Once we determine the fair value estimate of a stock, we income needs, and complete investment portfolio, among
compare it with the stock’s current market price on a daily other factors.
©2019 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute
investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without 14
notice. Except as otherwise required by law, Morningstar 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. The information contained herein is the
proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. 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. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report.Morningstar Equity Research | Large Cap Global Core Pick List | May 2019
The Morningstar Star Ratings for stocks are defined below: This report is for informational purposes only and has
no regard to the specific investment objectives, financial
QQQQQ We believe appreciation beyond a fair risk- situation or particular needs of any specific recipient. This
adjusted return is highly likely over a multiyear time frame. publication is intended to provide information to assist
Scenario analysis developed by our analysts indicates institutional investors in making their own investment
that the current market price represents an excessively decisions, not to provide investment advice to any
pessimistic outlook, limiting downside risk and maximizing specific investor. Therefore, investments discussed and
upside potential. recommendations made herein may not be suitable for all
investors: recipients must exercise their own independent
QQQQ We believe appreciation beyond a fair risk- judgment as to the suitability of such investments and
adjusted return is likely. recommendations in the light of their own investment
objectives, experience, taxation status and financial position.
QQQ Indicates our belief that investors are likely to
receive a fair risk-adjusted return (approximately cost of The information, data, analyses and opinions presented
equity). herein are not warranted to be accurate, correct, complete
or timely. Unless otherwise provided in a separate
QQ We believe investors are likely to receive a less than agreement, neither Morningstar, Inc. or the Equity Research
fair risk-adjusted return. Group represents that the report contents meet all of the
presentation and/or disclosure standards applicable in the
Q Indicates a high probability of undesirable risk-adjusted jurisdiction the recipient is located.
returns from the current market price over a multiyear time
frame, based on our analysis. Scenario analysis by our Except as otherwise required by law or provided for in a
analysts indicates that the market is pricing in an excessively separate agreement, the analyst, Morningstar, Inc. and
optimistic outlook, limiting upside potential and leaving the the Equity Research Group and their officers, directors and
investor exposed to Capital loss. employees shall not be responsible or liable for any trading
decisions, damages or other losses resulting from, or related
Risk Warning to, the information, data, analyses or opinions within the
Please note that investments in securities are subject report. The Equity Research Group encourages recipients
to market and other risks and there is no assurance or of this report to read all relevant issue documents (e.g.,
guarantee that the intended investment objectives will prospectus) pertaining to the security concerned, including
be achieved. Past performance of a security may or may without limitation, information relevant to its investment
not be sustained in future and is no indication of future objectives, risks, and costs before making an investment
performance. A security investment return and an investor’s decision and when deemed necessary, to seek the advice of
principal value will fluctuate so that, when redeemed, an a legal, tax, and/or accounting professional.
investor’s shares may be worth more or less than their
original cost. A security’s current investment performance The Report and its contents are not directed to, or intended
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