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So, is Morningstar Investor worth the money?
How reliable are Morningstar ratings?
Can it really help you make better investment decisions and achieve above-average returns?
I have tried out Morningstar Investor and many other platforms, so let me share with you a very detailed comparison including both the pros and cons of each stock analysis and research platform.
Hopefully, you will find it useful and time-saving (possibly money-saving too).
Morningstar Investor
The biggest selling point of Morningstar Investor would definitely be its stock ratings, independent stock research reports, and stock valuations.
It’s a very useful platform to help you research and analyze stocks that you are interested in, and it also makes it super easy for you to find good stock ideas.
Research & Analyze Stocks Using Morningstar Investor
Here’s an example of how I used Morningstar to do research on a stock that I am interestd in.
Recently, the Walt Disney stock has reached a new multi-year low and it caught my attention.
Is it a good time to buy Walt Disney?
Can Morningstar help me make a good investment decision?
Using Morningstar Investor, I can get an overview of Walt Disney’s basic financial data.
What really draws me to Morningstar are its independent analyst research reports and its stock ratings.
Morningstar analysts provide opinions on the latest news affecting a stock that you are interested in.
Also, they help you put into context recent news and events such as earnings releases, legislative changes, or global news events as well as talk about whether and how recent events impact the company’s fair value estimate or economic moat rating.
So, how exactly does Morningstar rate stocks?
Morningstar adopts a stock-picking approach that focuses on long-term advantages and intrinsic value.
To help you gauge whether or not a company has “long-term advantages” over its competitors, Morningstar provides you with economic moat ratings for each stock.
There are three types of economic moat ratings:
- Wide (i.e. highest moat rating)
- Narrow
- Non
Companies with a “Wide Moat” rating have the most sustainable competitive advantages.
And these companies are the best for long-term investments.
So, how do you know which wide-moat stocks you should buy and when you should buy them?
This brings us to Morningstar’s stock Star Rating.
Morningstar’s Star Rating gives you an idea of the stock’s current valuation.
In other words, it tells you whether the stock is above its fair value, below its fair value, or near fair value.
It’s calculated by comparing a stock’s current market price with Morningstar’s estimate of the stock’s fair value.
So, here’s how star ratings work.
The further the market price is below the fair value, the higher the star rating (with 5-star being the highest and 1-star being the lowest).
A 5-star rating means that the stock is trading meaningfully below fair value, which means it’s a good price to buy.
On the other hand, a 1-star or 2-star rating means that the stock is trading meaningfully above fair value.
A 3-star rating means the stock is trading near fair value.
Is Morningstar Fair Value Estimate reliable?
Morningstar calculates its fair value estimate based on its estimate of how much cash the company will generate in the future.
As you all know, no one can predict the future with 100% accuracy.
That’s why Morningstar takes into account “the predictability of company’s future cash flow”.
The less predictable (or uncertain), the higher the margin of safety is required for a 4-star or 5-star rating.
For example, McDonald’s future cash flow is more predictable and stable than Lions Gate Entertainment.
For Lions Gate Entertainment stock to be assigned a 4-star or 5-star rating, its current market price must be much much lower than its fair value estimate.
All in all, I think Morningstar ratings and fair value estimates are useful.
Morningstar gives me its independently calculated fair value of Walt Disney.
Currently, Walt Disney is priced 44% below Morningstar’s fair value estimation.
This is good to hear because if I decide to buy, I know that I have a very decent margin of safety.
” According to Investopedia, margin of safety refers to a principle of investing in which an investor only purchases securities when the market price is significantly below its intrinsic value (i.e. fair value). In other words, when market price is significantly below your estimation of the intrinsic value, the difference is the margin of safety. “
For Walt Disney, assuming Morningstar’s fair value estimation is not far off, then you would have a margin of safety of about 40%.
All in all, a margin of safety allows you to buy a good company at a much cheaper price for added protection.
According to Morningstar, Walt Disney also has a wide moat which is another plus sign.
Now, I move on to its analyst’s research report which talks about the following:
- Business strategy and outlook
- Economic moat
- Fair value and profit drivers
- Risk and uncertainty
- Capital allocation
When I go through the analysis, I always place great importance on the section called “Risk and Uncertainty”.
Why?
Because when I buy a stock, I don’t have to worry about the upside.
Rather, I should be more concerned about the downside and try as much as possible to limit my downside.
Morningstar also has a tool called “Bulls Say Bear Say” where I can understand the perspectives of investors who are pessimistic about this stock.
As an investor, I think it’s very important to hear from people with differing views because it makes you think more clearly about your own investment analysis and better understand the risks involved.
So, do I want to buy Walt Disney stock right away?
Valuation-wise, it’s very attractive.
But, when I weigh it against the potential risks such as high uncertainty in its future earnings growth, I want to put it on my watchlist first, and go through other wide-moat undervalued stocks before making a final investment decision.
Find Good Stock Ideas Using Morningstar Investor
So, how do I use Morningstar Investor to find good stock ideas?
Personally, I like to find all the stocks that have a Wide-Moat and are currently undervalued.
Using the Morningstar Investor stock screener, you can choose a Wide Moat Rating and a Star Rating of 5 stars under “Ratings”.
There are other criteria such as Industry, Sector, Market Cap, Valuation, Profitability, and Dividend that you can customize.
But, it’s quite limited compared to Stock Rover’s fundamental stock screener.
Basically, I only find the stock ratings useful.
If you are also investing in index funds, mutual funds, or bond funds, you can also use Morningstar ratings to research funds.
Personally, I don’t recommend mutual funds.
This is because the majority of mutual funds underperform the market.
On top of that, they charge ridiculously high fees which will significantly reduce your investment returns in the long term.
Did you know how just a 1% increase in fees would impact your investment returns?
Let’s punch some numbers.
Scenario 1 (with 1% annual fee):
| Initial Investment amount | $100,000 |
| Annual Fee Charged by Mutual Fund | 1% |
| Annual Return of Mutual Fund | 6% |
| Number of Years Invested | 20 Years |
| Portfolio Value Without Fees | $320,713 |
| Portfolio Value With Fees | $262,313 |
| Reduction of Portfolio Value Due to Fees (%) | 18.21% |
Scenario 2 (with a 2% annual fee):
| Initial Investment amount | $100,000 |
| Annual Fee Charged by Mutual Fund | 2% |
| Annual Return of Mutual Fund | 6% |
| Number of Years Invested | 20 Years |
| Portfolio Value Without Fees | $320,713 |
| Portfolio Value With Fees | $214,110 |
| Reduction of Portfolio Value Due to Fees (%) | 33.24% |
So, you can see the amount of money you could lose to fees is HUGE in the long term.
Now, what about ETFs?
If you are a passive investor, ETFs are a good choice.
But you should always choose high-quality ETFs with minimal fees.
Apart from the ratings and research report, Morningstar Premium also provides you with portfolio tracking and analytics tools.
But, that is actually nothing to be wowed about because you can find better (and free) portfolio management and analytics tools online.
So, how much does Morningstar Premium cost?
Morningstar Premium memberships are available at the following term lengths and prices:
- $34.95/month
$249/year$199/year (i.e. $16.5/month)
Now, let’s go back to the important question.
Is Morningstar Premium worth it?
If you are a value investor who prefers to do your own research, then you might find Morningstar Premium ratings and stock research reports quite useful.
You can give Morningstar Premium a try for free for 7 days!
Also, you can take $50 OFF Morningstar Premium if you decide it’s a good fit for you.
[Limited Time Only] Claim Your $50 OFF Morningstar Premium
Morningstar Vs Stock Rover
However, I would recommend Stock Rover if you are a serious value investor who wants to dive deep into how a company is actually doing fundamentally and financially.
Why?
This is because Stock Rover is one of the most powerful stock research and analysis platforms with everything you need to do an in-depth fundamental analysis of every stock listed on the US and Canada stock exchanges.
Not only you would get access to all the fundamental and financial data of the company going back to at least 20 years, but you would also have research reports, analyst ratings, and the fair value of the stocks.
For Stock Rover‘s paid plans, there are three tiers:
- Essentials at $7.99/month (or $6.67/month if billed annually)
- Premium at $17.99/month (or $15.00/month if billed annually)
- Premium Plus at $27.99/month (or $23.33/month if billed annually or $19.95/month if billed for two years)
So, in terms of pricing, I would say you get much more value for your money with Stock Rover.
Try Out Stock Rover Risk-Free For 14 Days Now (No Credit Card Required)
Morningstar Premium Vs Motley Fool
Now, what about other Morningstar Premium alternatives?
Motley Fool Stock Advisor is one of the other good options you can consider.
So, what is the key difference between Morningstar Premium and Motley Fool?
Morningstar Investor provides you with ratings on stocks, bonds, ETFs, mutual funds, and independent stock research reports.
Basically, what Morningstar Investor offers are tools that you can use to make your own investment decisions.
On the other hand, Motley Fool Stock Advisor gives you two specific stock picks every month that it thinks might outperform the market in the long term.
For every stock pick, it will not only tell you what price to buy, but it will also explain to you the reasons behind the “buy recommendation” and the potential risks involved.
On top of that, it will continue to keep you informed of any news or big price movements in the stock.
When it thinks it is the right time to sell, it will let you know too.
On the other hand, Morningstar Investor doesn’t give you specific stock picks.
Therefore, there is no track record of how Morningstar ratings have been performing compared to the S&P 500.
First of all, let’s take a look at their track record as of 26 June 2024.
Below is the performance comparison between Motley Fool Stock Advisor and S&P 500 between 2002 and 26 June 2024.
As of 26 June 2024, average Motley Fool Stock Advisor recommendations have returned over 756% since inception while the S&P 500 has returned 161%.
In short, the Motley Fool Stock Advisor has outperformed the market 4 to 1.
But, what about its individual stock picks?
Below is a table that shows you the performance of individual stock picks over the years.
As of 6th September 2023, Motley Fool Stock Advisor has had 173 stock recommendations with 100%+ returns.
[Past performance is no guarantee of future results. Individual investment results may vary. All investing involves risk of loss.]
Will the Motley Fool Stock Advisor always be right about their stock recommendations?
No, because no one can be right about their stock picks 100% of the time.
Let me sidetrack a bit here.
If any stock picking service tells you that they have a close to 100% success rate on their stock picks and can guarantee you high investment returns, you should definitely stay away.
Even Warren Buffet has loss-making stocks in his portfolio, but he still achieves above-average returns because a few big gainers in the portfolio can make up for the under-performers.
What I like about the Motley Fool Stock Advisor is that they are very open and transparent about their bad investments.
As a member, I can see the performance of ALL its past and current stock recommendations (even for closed positions).
Some other stock-picking services that I’ve tried, don’t publish the performance of all their past and current stock recommendations, so it’s not easy for you to find out their true track record.
So, if you are thinking of getting into stock investing, I recommend the Motley Fool Stock Advisor because I think there are a lot of well-researched stock recommendations with long-term growth potential.
However, the downside of Motley Fool Stock Advisor is that it sends out a lot of marketing emails and upsells you to its other products.
There’s no need to buy its other products.
Personally, I only use Motley Fool Stock Advisor to get stock ideas and then I will do my own independent research again.
Lastly, in terms of pricing, Motley Fool Stock Advisor costs the same as Morningstar Investor for the annual subscription, which is $199/year.
Right now, there’s a special limited-time 50% OFF offer* for new members for the first year when you click the link here to try it out for 30 days with a Membership-Fee-Back Guarantee. (*Billed annually. Introductory price for the first year for new members only. First-year bills at $99 and renews at $199)
So, for $99 a year- that’s just $1.70 a week – you can gain unlimited access to their library of expert stock recommendations which are carefully selected to help you grow your wealth.
Limited Time: Claim Your 50% OFF Stock Advisor Introductory Offer For New Members
Morningstar Premium vs. Yahoo Finance Premium
Next, let’s compare Morningstar Premium with Yahoo Finance Premium.
Both are stock research and analysis tools (i.e. research reports, charts, financial data, etc) that you can use to help you make your own investment decisions.
The key difference is that Morningstar Premium provides you with stock ratings on Economic Moat and Valuation to help you find high-quality companies at a good price for your long-term investment.
On the other hand, Yahoo Finance Premium helps you find long-term stock ideas based on valuation and also short-term trading picks based on chart patterns.
It might seem that you are getting the best of both worlds from Yahoo Finance Premium, but I feel that what it offers is too simplistic and basic.
For example, if you are serious about short-term trading, then you might prefer to have powerful trading software with more advanced charting tools as well as a dynamic stock scanner that can help you look for high-probability trade setups in real time.
Or if you are a serious long-term investor who prefers to do your own fundamental analysis of the listed companies, then I would recommend Stock Rover because both Morningstar Premium and Yahoo Finance Premium might not have all the data and tools that you need.
So, who is Morningstar Premium right for?
Morningstar Premium is right for value investors who prefer to use Morningstar ratings to pick stocks that are undervalued and have a wide moat.
[Limited Time Only] Claim Your $50 OFF Morningstar Premium
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