Statistical and Graphical Example

Example 6: Reading some Morningstar data – Stocks

 

As investors you should know how to read stock data. Perhaps there is no better example than stock data compiled by Morningstar Investment Research. They are a world-class company when it comes to collecting and organizing data in a concise fashion. 

The graphic below shows a one-page "snapshot" of financial and statistical data for Johnson and Johnson (ticker symbol, JNJ). The Morningstar Investment Research Center database covers about 1,700 stocks and is available online. Clearly there's too much to cover in this brief write up.  Let's cover the more pertinent features so that if you decide to use the database you will have some idea of what you are looking at.

First we see a time plot of $10,000 invested in JNJ's stock beginning in 2008. The first line is JNJ, the second line is the benchmark industry group (pharmaceuticals), and the third line is the S&P 500. You can see that a $10,000 investment in JNJ would have earned you more than investing in the general market or an industry index.  Below the graphic are the per year annual rates of return for the stock. The next two lines show the ± performance of the stock relative to the industry and the S&P 500 index.  For example, in 2008 JNJ outperformed both the industry and the S&P by 9.8% and 30.9%, respectively. 

The closing price of the stock on June 6, 2011 was $66.05 per share. Morningstar classifies this stock as a "Large Value" stock, meaning it's a large company and its price suggests it's under-valued by Morningstar. Notice in the middle of the page that Morningstar gives the stock a 4-star rating (with 5-stars being the highest).  The "Consider Buying" and "Consider Selling" comments state that Morningstar's analysts feel that if the stock dips below $60 per share you should buy it (it is undervalued) and if it exceeds $93.80 per share you should sell it (it is overvalued).  Its fair value estimate is $75 per share.

As with stocks Morningstar also follows mutual funds.  This is the place to go for a quick view of any mutual fund you can name.  In the graphic below I'm using their report for the Oakmark Equity & Income Fund. This fund is a blend of stocks and bonds. You can see in the graphic that a $10,000 investment in this fund would have outperformed the fund "category" which is an index fund with a similar stock and bond composition. Annual fund returns are listed right below the graphic. For example in 2007 the fund returned 12 percent. Notice the negative rate of return in 2008 of -16.2 percent.  While you may not like a negative return, it's a lot less negative than a general stock market return of -33% for this same year. The reason is because the fund holds some bonds as well as stocks. So it won't do as well as the market when stocks are going through the roof, but it won't do as poorly when stocks are in the toilet. I own shares of this fund and it is part of my core holding.  This is a popular fund—it's closed to new investors because its expense ratio is low and because it's well managed.  Funds close when they get too big as is the case here.

Notice the NAV (net asset value) on June 6, 2011 was $28.63 per share. That means you could buy shares from or sell shares to the fund at this price (excluding transactions costs).  Notice it is no front-end load fund. This means you don't pay up-front brokerage fees to buy the fund. The term "yield" means the cash yield as a percent of the NAV on this date.  Also notice that it carries a 5-star rating (out of 5). The expense rate is very low at 0.79%—you will pay $0.79 for every $100 you have in the fund. 

At the bottom of the chart shows the Morningstar style box for this fund.  It is considered a large cap growth fund for its stocks. Notice the types of sectors the fund invests in. Also notice the cash/stock/bond breakdown on this date. Most of the fund's assets were in stocks on this data. That's because the managers feel that stocks have better growth potential currently than bonds. The managers are free to change these percentage weights.

Source: Morningstar and the Tarleton State University library

 

 

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