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Morningstar on the Stock Market |
HenryTo
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Location: Los Angeles, California
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 Posted: Mon Feb 11, 2008 2:11 am Post subject: Morningstar on the Stock Market |
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http://news.morningstar.com/articlenet/article.aspx?id=227573&pgid=exchangetradedfunds
| Quote: | Let's cut right to the chase: Our research suggests that SPDRs Trust, an ETF that tracks the S&P 500 Index, will return 16% annualized over the next three years.
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Consider then that the S&P 500 was trading at a 15% discount to our fair value estimate as of Feb. 1 and that our weighted-average cost of equity for the index stands at roughly 10%. When you take the two together, it translates to a 15.89% expected return for the S&P 500. Subtract the SPDR's infinitesimal 0.09% expense ratio from that tally, and you end up with a 15.8% return. |
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Morningstar on the Stock Market Replies |
HenryTo
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Joined: 06 Aug 2004
Posts: 11740
Location: Los Angeles, California
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| Posted: Wed Feb 13, 2008 9:38 am Post subject: |
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Morningstar's commentary on the majority of the Dow components:
http://news.morningstar.com/articlenet/article.aspx?id=228445
| Quote: | Not coincidentally, there are very few businesses in the portfolio that we'd consider excessively risky. Our analysts consider 13 of the fund's 30 holdings--representing roughly half of the fund's assets--to be below-average risks. And the only two names that pose above-average risk-- Altria and General Motors -- account for only 7% of assets. The portfolio is also well-diversified across stocks and industries. For instance, IBM sits alongside ExxonMobil in the portfolio's upper rungs. That diversification has kept a lid on volatility.
Given this, we wouldn't demand a significant margin of safety before recommending Diamonds, as the fund doesn't pose extreme risks. We'd be buyers anytime the fund traded at an 8% or greater discount to our fair value estimate.
In that light, the fund positively gleams, as it was recently trading 17% below what we think it's worth. That affords a margin of safety, and plenty more. |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11740
Location: Los Angeles, California
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| Posted: Tue Feb 12, 2008 10:15 pm Post subject: |
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Morningstar on the Dow Jones Industrials:
http://news.morningstar.com/articlenet/article.aspx?id=228434&pgid=hparticle
| Quote: | The Dow was trading at a very hefty 17% discount to our estimate of its fair value, which stood at around 14,000 as of Feb. 7, 2008. We base that fair value estimate on the fair value estimates that our equity analysts have placed on the Dow's 30 component stocks. The Dow hasn't looked this cheap to us since September 2002 when the index stood at 7,592 (three years later it had risen to 10,569).
When we take the Dow's market price and fair value estimate together with its 9.7% weighted average cost of equity (our analysts assign a percentage cost of equity to every stock they cover, including all of the Dow's components), it translates to a 17% annualized expected return. In other words, this is the return an investor would reap if the prices of the Dow's components converged to our fair value estimates over a three-year holding period (not ad infinitum). |
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