How to Use Morningstar Ratings to Find Quality Stocks

THE VALUE INVESTOR: A guide to understanding Morningstar analyst-driven stock ratings and how they work together

Karen Wallace 20 August, 2015 | 5:06PM
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To fully understand the star rating and how you might use it as a consider-buying gauge, it might help to get a brief background on how a few analyst-driven Morningstar ratings are determined and how they work together.

The Star Rating

Let's start with the star rating, whose official name is the Morningstar Rating for stocks. This is calculated by comparing a stock's current market price with Morningstar's estimate of the stock's fair value. The bigger the discount, the higher the star rating.

Our rating system also factors in an uncertainty adjustment, known as the fair value uncertainty rating, so that it's more difficult for a company to earn a 5-star rating the less confident we are in the precision of our fair value estimate.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Karen Wallace  Karen Wallace is an editor with Morningstar.

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