Value investing is the art of picking up stocks that are trading at less than their intrinsic value. The most famous value investor is Warren Buffett, who warns against going the way of the crowd - preferring instead to contrarian invest, buying stocks that the market is less interested in.
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down," says Buffett.
Morningstar star ratings can help investors determine which stocks are undervalued. Whereas the fund and ETF star ratings are both backward-looking quantitative measures of a fund's risk/reward profile, the stock star rating is completely different. It's both quantitative and qualitative, for starters, and it's meant to be forward-looking.
If a stock has a high star rating, that means we think the shares are undervalued, and the share price could rise in the future.
Below are a selection of US stocks with a four or five star rating - that could rise in value over the next 12 months.
Exelon Corp (EXC)
Exelon is a holding company with regulated and unregulated divisions. Its regulated utilities deliver power and gas to 6.6 million customers at Commonwealth Edison (Illinois), PECO (Pennsylvania), and Baltimore Gas & Electric. It owns 11 nuclear plants and 34 gigawatts of generation capacity in seven states, producing 22% of U.S. nuclear power and 4% of all U.S. electricity. Exelon also is the largest power retailer in the U.S., serving about 150 terawatt hours of load. In March 2012, Exelon bought Constellation Energy for $7 billion.
Ford Motor (F)
Ford Motor Company manufactures automobiles under its Ford and Lincoln brands. The company has about 16% market share in the United States and nearly 8% share in Europe. Ford and Lincoln brand sales in North America and Europe made up 63% and 21% of 2012 auto revenue, respectively. The company also owns 3.5% of Mazda. Ford has about 171,000 employees and is based in Dearborn, Mich.
Enbridge Energy Management (EEQ)
Enbridge Energy Management's sole asset is its 17% limited partner ownership stake in Enbridge Energy Partners, a pipeline master limited partnership. Beyond its ownership of a part of the large Lakehead pipeline system, Enbridge Energy Partners has several smaller crude pipelines in the United States, as well as a natural gas gathering and transportation business. Enbridge Energy Management was created so institutional investors could more easily invest in Enbridge Energy Partners.
Coca-Cola Co (KO)
Coca-Cola is the world's largest non-alcoholic beverage company. The firm, which sells a variety of sparkling and still beverages, generates 60% of its revenue and about 80% of its operating profit from outside the United States. Coke's core brands include Coca-Cola, Sprite, Dasani, Powerade, and Minute Maid. Following the asset swap with Coca-Cola Enterprises, Coke now owns about 80% of its distribution in North America.
Western Union (WU)
Western Union provides domestic and international money transfers through its global network of more than 500,000 outside agents. It is the largest money transfer company in the world, with almost 20% market share in international remittances, and one of only two companies with a truly global agent network, with MoneyGram being the other.
