10 Top Stock Picks of the Best Fund Managers

Investors get stock picks from many different sources. Some reply on trusted advisors. Others prefer hunting for ideas on financial websites, YouTube channels, or investment newsletters. Still others get stock tips from colleagues at work or friends at dinner parties.

At Morningstar, we provide investors with plenty of stock picks from our analysts, from one of our indexes, or from our database by using a variety of screens. Today, we’re tapping into another source of stock ideas: the portfolios of the best fund managers.

To find the best stock investors among current active fund managers, we screened on the following:

• Actively managed funds that land in Morningstar’s US large-value, US large-blend, or US large-growth categories.
• Funds with at least one share class earning Morningstar Medalist Ratings of Gold with 100% analyst coverage.
• Funds that hold 100 stocks or fewer as of their most recently reported portfolios.

Thirteen separate fund portfolios passed our screen. We aggregated the portfolios together to find the 10 most popular stocks (as determined by portfolio concentration and number of funds that own the stock) across all 13 fund portfolios.

10 Top Stock Picks of the Best Fund Managers

These are the most popular stocks among our list of the best investors as of their most recent portfolios. Data is as of Aug. 9, 2024.

1. Microsoft MSFT
2. Nvidia NVDA
3. Amazon.com AMZN
4. Alphabet GOOGL
5. Apple AAPL
6. Visa V
7. Bank of America BAC
8. Wells Fargo WFC
9. Meta Platforms META
10. ConocoPhillips COP

This list is a good reminder that not every stock pick is a stock to buy: Several of the top stock picks on this list look fairly valued or overvalued today. As such, they make excellent watchlist candidates to buy on weakness.

Here’s a little bit about each stock pick, along with some commentary from the analyst who follows the company. All data is as of Aug. 9, 2024.

Microsoft

• Number of best managers who own the stock: 8
• Morningstar price/fair value: 0.83
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Technology

Microsoft is the top stock pick from our best fund managers in terms of overall weighting and number of managers who own the stock. While Microsoft is classified as a growth stock, it’s a holding among some of the value managers on our list, too. We think Microsoft stock is worth $490; the stock looks 17% undervalued today.

Here’s Morningstar senior analyst Dan Romanoff’s commentary after Microsoft’s most recent earnings release:

We raise our fair value estimate for wide-moat Microsoft to $490 per share, from $435 after the company delivered another good quarter overall, even if it was in line with our expectations on headline numbers. In an earnings call packed with new data points around artificial intelligence-related demand, which were impressive, in our view, the single most important item was guidance that calls for Azure revenue to accelerate in the second half of the year as the current surging investment in data center capacity comes online. Therefore, we raised our revenue growth estimates for the medium term, and we also tweaked our profitability assumptions higher based on consistently good performance and a solid outlook. Revenue was again governed by data center capacity constraints and several pockets of slight weakness arising in Europe. With shares down slightly afterhours following a recent pullback, we see the stock as attractive.

We see results reinforcing our long-term thesis, which centers on the proliferation of hybrid cloud environments and Azure. The firm continues to use its on-premises dominance to allow clients to move to the cloud at their own pace. We center our growth assumptions around Azure, Microsoft 365 E5 migration, and traction with the Power Platform for long-term value creation. AI is also quickly supplementing growth, which we see as another secular driver.

For the June quarter, revenue increased 15% year over year to $64.73 billion, compared with the midpoint of guidance of $64.00 billion. Activision added about $1.68 billion, or 3 points of growth, to revenue. Relative to the year-ago period, productivity and business processes rose 11%, intelligent cloud increased 19%, and more personal computing expanded 14%. Compared with guidance, both PBP and MPC came in above the high end, while IC was just below the midpoint. Good sales execution and sales mix toward software, away from hardware, supported margins.

Read Morningstar’s full report about Microsoft stock.

Nvidia

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.00
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Very High
• Morningstar Style Box: Large Growth
• Sector: Technology

Nvidia stock looks about fairly valued to us today. The stock of this wide-moat company has skyrocketed during the past couple of years, riding the artificial intelligence wave. And for good reason: Morningstar strategist Brian Colello argues that Nvidia should continue to earn historic revenue growth from generative AI. We assign Nvidia stock a fair value estimate of $105.

Here’s what Morningstar’s Colello said about Nvidia after its stock split in June:

Our fair value estimate is $105 per share after the firm completed a 10/1 stock split on Monday, June 10. This fair value estimate implies an equity value of roughly $2.5 trillion. Our fair value estimate implies a fiscal 2025 (ending January 2025, or effectively calendar 2024) price/adjusted earnings multiple of 37 times and a fiscal 2026 forward price/adjusted earnings multiple of 27 times.

Our fair value estimate, and Nvidia’s stock price, will be driven by its prospects in the data center and AI GPUs, for better or worse. Nvidia’s DC business has achieved exponential growth already, rising from $3 billion in fiscal 2020 to $15 billion in fiscal 2023 and more than tripling thereafter to $47.5 billion in fiscal 2024. DC revenue appears to be supply constrained, and we think that Nvidia will continue to steadily boost revenue in each of the four quarters in fiscal 2025 as more supply comes online. Based on Nvidia’s strong forecast start to fiscal 2025, we model DC revenue rising 133% to $111 billion in fiscal 2025. We model a 23% CAGR for the three years thereafter, as we anticipate strong growth in capital expenditures in data centers at leading enterprise and cloud computing customers. We think it is reasonable that Nvidia may face an inventory correction or a pause in AI demand at some point in the medium term thereafter. Excluding this one-year blip that we model, we anticipate average annual DC growth of 10% thereafter and consider this to be a reasonable long-term growth rate as AI matures.

In gaming, which was formerly Nvidia’s largest business, we model $11.8 billion of revenue in fiscal 2025, and 10% average annual revenue growth thereafter. We have high hopes for Nvidia’s automotive business, as greater processing power will be required in active safety systems and autonomous driving. We model $1.4 billion of revenue in fiscal 2025 and revenue growing at a 20% CAGR over the next decade.

In summation, Nvidia achieved 126% revenue growth in fiscal 2024, and we anticipate another massive year with 107% growth to $126 billion in fiscal 2025. We model long-term midcycle revenue growth of roughly 10% per year for the business as a whole, resulting in a 29% CAGR over the next decade.

Read Morningstar’s full report about Nvidia stock.

Amazon.com

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 0.87
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Consumer Cyclical

Like Microsoft, the next stock pick from our best managers also appeals to both growth and value managers alike: Amazon. This growth stock fell well below our fair value estimate in 2022 as its stock price plummeted. Since then, Amazon stock has flourished, gaining more than 80% in 2023. Today, the stock of this wide-moat company trades 14% below our fair value estimate of $195.

Morningstar’s Romanoff had this to say about Amazon’s latest earnings report:

We are raising our fair value estimate for wide-moat Amazon to $195 per share from $193 after the company reported solid second-quarter results. The company’s third-quarter outlook aligned with our revenue estimate and was better than our operating income estimate. Changes to our model are modest but center around continued profitability enhancements in the near term. Amazon continues to take strides in efficiency improvements throughout the network, which helps lower costs and improve delivery speeds and ultimately drives increased purchases by prime members. After a pullback that began in early July, we see shares as increasingly attractive.

Overall demand trends remain unchanged over the last year or so, with e-commerce showing signs of consumer stress. Second-quarter revenue grew 10% year-over-year as reported, or 11% in constant currency, to $148.0 billion, compared with the guidance midpoint of $146.5 billion. Relative to our estimates, online stores and third-party seller services drove most of the miss, while all segments were slightly light. Amazon Web Services was nicely ahead of our model. The two key segments for long-term growth, AWS and advertising, increased 19% and 20% year over year, as reported, respectively. Amazon’s advertising growth continues to outpace its large internet peers, while AWS’ growth accelerated sequentially for the fourth straight quarter.

Margins have been consistently stronger than anticipated over the past year, and we continue to believe there is room for expansion as the multihub strategy continues to unlock efficiencies. Second-quarter profitability was impressive, with operating profit at $14.7 billion, compared with the high end of guidance at $14.0 billion. This resulted in an operating margin of 9.9%, compared with 5.7% a year ago. The international unit generated positive operating profits for the second straight quarter, which we think is a harbinger for longer-term expansion.

Read Morningstar’s full report about Amazon stock.

Alphabet

• Number of best managers who own the stock: 7
• Morningstar price/fair value: 0.90
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Communication Services

More than half of the best managers on our list own Alphabet stock. Like Microsoft and Amazon, this stock pick came into 2023 looking quite undervalued, after the growth stock shakeup in 2022. But Alphabet stock soared in 2023, finishing the year up nearly 60%. Despite the price runup last year, the stock of this wide-moat company still looks slightly undervalued when compared with our $182 fair value estimate.

Morningstar director Mike Hodel expressed this take on Alphabet’s recent results:

Solid ad revenue growth during the second quarter contradicts the notion that Alphabet is losing its footing in the search business. Also, growth in the Google Cloud business accelerated again, reaching the fastest pace in 18 months as AI tools augment broader cloud adoption. After adjusting our model, we have modestly increased our fair value estimate to $182 from $179.

Total revenue increased 14% year over year, roughly on par with the prior quarter. Google search revenue increased 14% to $48.5 billion, with retailers again the largest source of growth. Retail demand, especially among Asian firms, began to pick up during the second quarter of last year and has yet to show signs of slowing. Alphabet also highlighted the early success of AI overviews within search results. Despite early snafus, management indicated that search usage and satisfaction have improved with the inclusion of overviews and that ads have been well received above and below overview boxes. In short, we’ve yet to see strong evidence that new forms of accessing information, like ChatGPT, are blunting search volumes or that other query-based advertising offerings, such as on Amazon, are increasingly eating into traditional search demand.

YouTube advertising growth slowed sharply to 13% from 21% last quarter. Management pointed to a tough comparison versus the initial jump in retailer spending last year, but the search business faced a similar dynamic without the same deceleration this quarter.

Cost controls, excluding the investment in computing infrastructure, continue to boost the operating margin, which expanded to 32% from 29% last year. Total SG&A expense declined 3% year over year, while both cost of sales and R&D declined as a percentage of revenue. Free cash flow declined sharply to $13 billion from $22 billion last year, primarily due to the timing of cash tax payments. Capital spending, primarily investment in compute infrastructure, increased to $13 billion from $7 billion last year.

Read Morningstar’s full report about Alphabet stock.

Apple

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 1.17
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Technology

Apple is the most overvalued stock on our list of stock picks from the best fund managers. That being said, we think Apple has carved out a wide economic moat, and we expect strong revenue growth in 2025. But even so, we think shares are worth just $185 and they trade well above that today.

Here’s what Morningstar analyst William Kerwin had to say about Apple’s latest earnings report:

We raised our fair value estimate for shares of wide-moat Apple to $185 from $170 after raising our medium-term iPhone revenue forecast. We continue to expect strong revenue growth in fiscal 2025 as users upgrade their iPhones to take advantage of Apple’s generative artificial intelligence features, requiring the latest and greatest hardware. We now forecast double-digit iPhone revenue growth in fiscal 2025 and another strong year of revenue growth in fiscal 2026. IPhone revenue remains the primary driver of Apple’s results. We see it as the linchpin to the firm’s walled garden ecosystem of hardware, software, and services, which underpins our wide moat rating and long-term growth thesis. However, we continue to see shares as overvalued. Apple’s current stock price implies closer to 20% iPhone revenue growth in fiscal 2025, which we see as lofty given headwinds to growth in China and slowing consumer phone upgrade cycles.

Apple’s June-quarter revenue and September-quarter guidance were above our model, driven by better performance for the iPhone than we feared. June-quarter revenue of $85.8 billion rose 5% year over year. IPhone revenue declined 1% year over year, and we believe guidance implies a return to year-over-year iPhone revenue growth in the September quarter. IPhone growth has been hampered in the past several quarters by greater domestic competition in the Chinese market, as well as extending hardware upgrade cycles in other markets. We expect generative-AI functionality to drive a return to growth in fiscal 2025. Services continued double-digit year-over-year growth, and we see this as Apple’s second-largest driver at roughly 25% of total revenue.

We remain impressed with Apple’s profitability and ability to expand margins. June-quarter gross margin rose 180 basis points year over year to 46.3%. We expect a rising mix of services revenue and higher levels of vertical integration to drive incremental margin expansion over the next five years.

Read Morningstar’s full report about Apple stock.

Visa

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 0.96
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Growth
• Sector: Financial Services

The first of three financial-services names on our list of top stock picks from the best managers, Visa stock looks about fairly valued. This wide-moat company is an established market leader in the payments industry, and we think it still enjoys good growth prospects. We expect the global trend toward digital payments and away from cash payments still has room to run, which bodes well for Visa. We think Visa stock is worth $272.

Morningstar senior analyst Brett Horn had this to say after Visa’s most recently reported earnings:

As Visa has moved past postpandemic tailwinds, we think growth has returned to normal levels, and we see the macro environment as the biggest swing factor in the near term. While some growth metrics slowed modestly in the fiscal third quarter, we don’t think this quarter marks a significant change on this front, and we continue to see the company’s path forward as relatively stable. We will maintain our $272 fair value estimate for the wide-moat company and see shares as about fairly valued at the moment.

Net revenue grew 10% year over year. Constant-currency payment volume growth for the quarter was 7.4% year over year. Payment volume growth had been in the range of 8%-9% over the past four quarters. Management attributed the slowdown partially due to some softness among lower-spending consumers. Transactions growth was 10%, in line with results over the past few quarters.

Cross-border volume has been the main source of volatility over the past few years, with the crash during the pandemic giving way to abnormally high growth more recently as travel recovered. However, we’ve seen signs that this tailwind is tapering off, and this quarter provided further confirmation of this trend. Constant-currency cross-border volume, excluding intra-Europe transactions—which are priced similarly to domestic transactions—grew 14% year over year in the quarter, down a bit from 16% in the last quarter. While growth in this area is still healthy in an absolute sense, the recovery in cross-border volume looks to be running out of steam.

Adjusted for one-time items, operating margins (on a net revenue basis) were 66.9%, compared with 67.5% last year. While expense growth has outstripped revenue growth in the last two quarters, management expects that to reverse in the fiscal fourth quarter. Client incentives grew only 11% year over year, reducing margin pressure on a gross revenue basis.

Read Morningstar’s full report about Visa stock.

Bank of America

• Number of best managers who own the stock: 7
• Morningstar price/fair value: 0.97
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Value
• Sector: Financial Services

Bank of America stock looks fairly valued relative to our $39.50 fair value estimate. As one of the largest financial institutions in the United States, Bank of America has carved out a wide economic moat. We think it boasts one of the best retail branch networks and overall retail franchises in the United States and that its scale and scope will continue to be important as the role of technology in banking grows.

After examining second-quarter results, Morningstar analyst Suryansh Sharma noted:

Wide-moat-rated Bank of America reported a good set of second-quarter numbers. Earnings per share came in at $0.83, slightly lower than the $0.88 in the year-ago quarter. For us, the biggest highlight was the company’s encouraging net interest income outlook for the remaining half of the year. Management expects NII to increase from $13.9 billion in the current quarter to around $14.5 billion by the fourth quarter. The shares have rallied around 5% since the announcement of the results July 16.

Profitability in the second half should also be boosted by expense control and relatively strong fee income in the asset-management, investment banking, and trading businesses. The second-quarter numbers resulted in a return on tangible equity of 13.6%. We plan to increase our $38 fair value estimate by a mid-single-digit percentage as we fully incorporate these results. The increase can mostly be attributed to the time value of money and slightly higher NII in the near term than we previously anticipated.

The shares had corrected by around 50% in late 2023 from their highs in early 2022 partly due to fears about the bank’s profitability and higher exposure to long-duration securities. Among other things, investors have been penalizing Bank of America for its longer-duration securities exposure when interest rates were rising. The longer-duration securities portfolio weighed on NII, as these assets were stuck on the books while earning lower yields. We have continuously highlighted that the bank's balance sheet position will temporarily weigh on earnings, but the long-term earnings capacity of this high-quality banking franchise is fully intact. The shares have rallied by around 75% from their lows in late 2023.

Read Morningstar’s full report about Bank of America stock.

Wells Fargo

• Number of best managers who own the stock: 6
• Morningstar price/fair value: 0.91
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
• Morningstar Style Box: Large Value
• Sector: Financial Services

Though no bargain, Wells Fargo is the least expensive financial-services name on our list of top stock picks from the best fund managers; we think the stock is worth $58. Wells Fargo is another of the largest US banks, and we think it has carved out a wide economic moat, thanks to cost advantages and switching costs.

Here’s what Morningstar’s Sharma had to say after digesting Wells Fargo’s latest earnings:

Wide-moat-rated Wells Fargo reported second-quarter EPS of $1.33 per share which compares with $1.25 per share in the same quarter of the previous year. Shares of the bank tumbled around 6% on the news of the updated 2024 expense guidance, which was a slight disappointment given the importance of controlling expenses for the bank. Trading revenue came in quite strong at $1.4 billion, which was an near all-time high for the bank. The second-quarter numbers resulted in a return on tangible equity of 13.7%, still below the management’s medium-term target of 15%. We do not plan to materially change our $58 fair value estimate for Wells Fargo as we fully incorporate second-quarter results.

The bank’s full-year 2024 net interest income guidance was changed to 8%-9% lower (previous guidance was 7%-9% lower) than the full-year 2023 level of $52.4 billion driven by loan balance declines and higher funding cost. Management still believes that the bank will likely see a trough of NII toward the end of 2024. In our opinion, the bank is not likely to see material growth in NII for a couple of years, even beyond 2024, given the asset sensitivity of the bank’s balance sheet. We project that NII will start to grow materially only after the current rate-cutting cycle is fully played out. The counterargument to this is that loan growth should help offset any NIM compression for the bank in the upcoming years. We think this is possible but seems unlikely given the lackluster demand for loans in the economy.

In terms of noninterest expense guidance, the bank now expects 2024 expenses to be $54 billion (including $336 million in FDIC charges and higher operating losses), 2.7% higher than the previous guidance of $52.6 billion. The increase in expense guidance was mainly driven by higher revenue-related compensation and higher operating losses. We expect operating losses to remain a lingering factor until regulatory issues are fully resolved.

Read Morningstar’s full report about Wells Fargo stock.

Meta Platforms

• Number of best managers who own the stock: 4
• Morningstar price/fair value: 1.15
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Growth
• Sector: Communication Services

Unlike several of the other technology and communication services names on our list of top stock picks from the best fund managers, Meta stock looks overvalued. We raised our fair value estimate on the stock to $450 after Meta’s reported solid second-quarter results.

Here’s commentary about those results from Morningstar’s Hodel:

Meta continues to deliver solid results amid strong digital advertising demand while investing aggressively in AI-related infrastructure, technology, and products. The firm tightened its capital spending forecast to the upper end of its previous expectations and said that investment growth will be “significant” in 2025. Meta reiterated that it believes the computing capacity it is building can be used for various tasks, with the flexibility to shift wherever the best opportunities emerge, a similar view that Alphabet has shared. We aren’t convinced Meta will earn strong returns on its infrastructure investment, but we expect the firm will continue to generate strong cash flow regardless of the direction AI takes. We were also pleased the firm maintained its expense forecast for the year. We are increasing our fair value estimate to $450 from $400.

Revenue increased 22% to $39.1 billion during the second quarter, beating the high end of management's forecast. User growth slowed a bit, with daily family-of-apps users expanding less than 1% sequentially for the first time in two years, reaching 3.27 billion. Ad impression growth slowed sharply to 10% year over year from 20% last quarter, but this deceleration primarily reflects a surge in impressions last year—volume growth on a two-year and three-year basis has held fairly steady over the past several quarters. Ad pricing was impressive, increasing 10% year over year. Meta indicated that ad demand was broad-based across geographies and industries, but again pointed to strong demand among retailers, especially those based in Asia, as the biggest growth driver.

The operating margin held steady with the prior quarter at 38%, up from 29% a year ago, thanks to lower restructuring costs and operating leverage against R&D, marketing, and overhead costs. While capital investment increased to $8.2 billion from $6.1 billion a year ago, free cash flow increased nearly 20% to $13.2 billion during the quarter.

Read Morningstar’s full report about Meta Platforms stock.

ConocoPhillips

• Number of best managers who own the stock: 5
• Morningstar price/fair value: 0.97
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High
• Morningstar Style Box: Large Value
• Sector: Energy

ConocoPhillips rounds out our list of stock picks from the best fund managers. This US-based independent exploration and production firm earns a narrow economic moat rating. The stock trades right around our fair value estimate of $112.

Morningstar director Allen Good had this take on the firm’s second-quarter earnings:

Narrow-moat ConocoPhillips reported second-quarter adjusted earnings of $2.3 billion compared with $2.2 billion a year ago, slightly exceeding market expectations. The result was driven by higher production and greater price realizations than the year before. Production grew 4% from the year before, adjusting for acquisitions and dispositions. After a strong second quarter, management narrowed full-year production guidance from 1.91-1.95 mboe/d to 1.93-1.94 mboe/d. However, it increased capital-expenditure guidance to $11.5 billion from $11.0 billion-$11.5 billion previously, given progress on Willow and greater Lower 48 activity. It also raised operating expense guidance to $9.2 billion-$9.3 billion from $8.9 billion-$9.1 billion thanks to increased transportation and processing costs and inflationary pressures in the Lower 48. We plan to incorporate the updated guidance into our model but do not expect a material change to our $112 fair value estimate.

Following its three-tier capital return framework, it paid out $0.9 billion in dividends and variable return of cash and repurchased $1.0 billion in shares. As previously announced, Conoco will increase the dividend by 34% to $0.78/share, incorporating the $0.20 variable dividend into the regular dividend, with the close of the Marathon acquisition, also expected in the fourth quarter. Debt/capital remained steady at 27%.

Read Morningstar’s full report about ConocoPhillips stock.

Who Are the Best Managers?

Thirteen large-cap funds passed our screen and therefore qualify as our best managers.

1. Brandes U.S. Value ETF BUSA
2. Diamond Hill Large Cap DHLYX
3. Dodge & Cox Stock DODGX
4. JPMorgan Equity Income OIEJX
5. Loomis Sayles Growth LSGRX
6. MFS Value MEIJX
7. Morgan Stanley Growth MSEQX
8. Oakmark OAKMX
9. Parnassus Core Equity PRILX
10. Principal Blue Chip PGBHX
11. T. Rowe Price All-Cap Opportunities PRWAX
12. T. Rowe Price Capital Appreciation Equity ETF TCAF
13. Vanguard Dividend Growth VDIGX

Six of the funds land in Morningstar’s US large-value category: Brandes US Value ETF, Diamond Hill Large Cap, Dodge & Cox Stock, JPMorgan Equity Income, MFS Value, and Oakmark. Parnassus Core Equity, T. Rowe Price Capital Appreciation Equity ETF, and Vanguard Dividend Growth are categorized as US large-blend funds. And Loomis Sayles Growth, Morgan Stanley Growth, Principal Blue Chip, and T. Rowe Price All-Cap Opportunities hail from the US large-growth category.

What Are the Morningstar Economic Moat Rating, the Morningstar Fair Value Estimate, and the Morningstar Uncertainty Rating?

Morningstar thinks that companies with economic moats possess significant advantages that allow them to successfully fend off competitors for a decade or more. Companies can carve out their economic moats in a variety of different ways—by having high switching costs, through strong brand identities, or by possessing economies of scale, to name just a few. Companies that we think can maintain their competitive advantages for at least 10 years earn narrow economic moat ratings; those we think can successfully compete for 20 years or longer earn wide economic moat ratings.

The Morningstar fair value estimate represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.

Lastly, the Uncertainty Rating captures the degree of uncertainty about our fair value estimate of a stock. The future cash flows of some companies are more difficult to calculate than others, thanks to factors such as financial leverage, the economic sensitivity of a company’s sales, its pricing power, and so on. When investing in companies with less certain future cash flows, investors should demand a larger margin of safety before buying that company’s stock.

Morningstar editors Margaret Giles and Lauren Solberg developed the methodologies and tools required to create this content.