Morningstar Review – A Screener for a Brighter Future
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I hate overpaying for something, especially stocks. That’s why I like value investing so much.
Value investing is a strategy of picking undervalued stocks that appear to be trading for less than their intrinsic value and then holding these quality companies for the long term.
Morningstar's investment research site is the perfect service for value investors looking for investment ideas.
In this article
What is Morningstar?
Morningstar is a financial services firm headquartered in Chicago and founded by Joe Mansueto in 1984. The research service covers 621,370 investments, the company says, including stocks, mutual funds, ETFs, and bonds.
Morningstar is best for individual investors who not only want detailed metrics on individual stocks and help with investment decisions but are interested in value investing and fundamentals.
You may have heard of the company through the Morningstar Rating. Morningstar ratings are a measure of a fund’s risk-adjusted return relative to similar funds. Funds are rated from one to five stars, with a five-star rating reserved for the best performers.
It’s a purely mathematical measure showing how well a fund’s past returns have compensated shareholders for the amount of risk it has taken on. Morningstar analysts and investment management don’t assign star ratings and have no subjective input into the ratings.
If you’re an active investor who doesn’t mind reading technical charts all day, then Morningstar probably isn’t for you. Morningstar does its best work helping value investors understand the fundamentals behind investments.
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How does Morningstar work?
The free version of Morningstar has basic data. Still, a Morningstar Investor membership gives subscribers many more tools to research investments, evaluate their investments, and help with portfolio management.
We’ll discuss the premium service's costs and features next, but you’ll need to sign up for it first.
Start at the Morningstar homepage and click the purple “Get 7 Days Free” button in the upper right. A 7-day trial is free, and after that, you’ll have to decide whether to subscribe monthly or annually or opt for the free version.
The next Morningstar Premium page will require creating an account for the 7-day trial. It asks for your name and email address, and you set a password.
You’re next asked to choose a term. According to the site, the most popular is one year for $249, which pays $20.75 monthly. There's also a monthly option that costs $34.95.
Your billing address is then required. And you probably know where this is going next.
Then, it asks for your payment method, which is a credit card. That’s where I stopped. I don’t want to be billed after seven days, so you’ll have to pay close attention to this deadline when signing up for a free trial.
How much does Morningstar cost?
Morningstar only has one paid subscription level. Here are the prices for Morningstar Premium:
Plan term | Total cost | Annual/Monthly cost |
1 year | $249 | $249/$20.75 |
1 month | $34.95 | $34.95/month |
A premium subscription includes many features, which we’ll detail below. These include Morningstar’s top investment picks, which are based on proprietary data points and categorized by type and investing goal.
Analyst reports and analyst ratings are provided by more than 150 independent analysts on mutual funds, stocks, and ETFs.
Subscribers can track their portfolio on the site and get help ensuring it is diversified and meets the user’s financial goals.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Morningstar features
Morningstar ratings
The feature that Morningstar is probably best known for is its ratings. It gives mutual funds, index funds, ETFs, and individual stocks one to five stars, with five as the top star rating.
Morningstar ratings started in 1985, a year after the company was founded. A star rating is given based on a fund’s risk-adjusted return based on its performance over three, five, and 10 years and volatility.
Users can view lists of star stocks, such as five-star stocks, that are considered good values. Three-year market returns can also be compared to one-year and year-to-date returns.
The rating system looks at the past, which, as any investment expert will tell you, doesn’t always mean much because past performance doesn’t guarantee future results. If you can’t use past performance to indicate future results, why look at them?
However, the rating system also looks at current factors. The rating is determined, the company says, by a stock’s current price, Morningstar’s estimate of the stock’s fair value, and the uncertainty rating of the fair value. The bigger the discount, the higher the star rating.
Four- and five-star ratings mean the stock is undervalued, three-star ratings mean it’s fairly valued, and one- and two-star ratings mean it's overvalued.
Another way to gauge how an ETF or fund will perform in the future is its expense ratio. The management fee is a percent of a buyer’s investment in the fund. A high expense ratio can indicate that the stock may not perform well in the future because it costs too much to own.
Portfolio X-Ray tool
Morningstar’s Portfolio X-Ray tool helps analyze a group of holdings. A free version called the Instant X-Ray tool is very basic. Morningstar premium members can use the more robust Portfolio X-Ray tool to examine data for stocks, mutual funds, or ETFs and get a picture of the portfolio’s overall characteristics.
Both tools require manually entering information about your portfolio, mainly the stock symbols. That seems a little clunky compared to other services that connect to a user’s brokerage account to help them find the best asset allocation.
Screeners
Morningstar’s basic screeners are free, but its Premium Stock Screener has many more features. The ESG Screener helps find investments meeting environmental, sustainability, and governance guidelines and filters for minimum Morningstar ratings.
ESG investing
Morningstar offers ESG investing research and ESG funds for sustainable investing. ESG stands for environmental, social, and governance. These are non-financial factors used in analyst reports to identify risk and growth opportunities. Socially conscious investors use ESG criteria to consider how a company performs as a steward of nature.
Who is Morningstar best for?
Value investors who want to understand the fundamentals behind stocks, mutual funds, and ETFs can probably benefit the most from Morningstar. Its star rating system is widely known and makes it easy to see how well an investment has performed in the past and if it’s undervalued.
Morningstar does a good job of recommending undervalued stocks through its rating system. Buying and holding such stocks for the long term in an investment portfolio can be beneficial.
Who shouldn’t use Morningstar?
Since the Morningstar ratings are focused on past performance, investors who don’t want past performance to be a big factor in choosing stocks and mutual funds may want to look elsewhere.
Almost any investment analyst will tell you past performance doesn’t guarantee future results. It must be part of some legal jargon a lawyer wrote somewhere for financial services companies. If you strongly believe that refrain, you may want to avoid Morningstar or give its star rating system and star stocks less weight.
Morningstar can also seem expensive if you’re not using it often or don’t like paying $249 upfront for a year of service. The free, basic account offers a glimpse of what the site offers, but the premium subscription offers much more.
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- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
Pros and cons
Pros
- Morningstar ratings are some of the most widely known ways to quickly assess investments, with a one- to five-star rating.
- Value investors looking for undervalued stocks may benefit the most from Morningstar’s services. A five-star rating means the stock is significantly undervalued and is considered a good deal for the share price.
- Sustainable investment options are offered by Morningstar through ESG investing.
Cons
- An annual membership for premium service is $249, and a monthly subscription is $34.95.
- Analyzing a group of holdings through the company’s Portfolio X-Ray tool is a little cumbersome, requiring subscribers to enter their investment information manually.
- Day traders or others who trade often may find less value in Morningstar than long-term investors looking for information about a company’s long-term viability. Morningstar offers updated information, but its focus is on recommending long-term investments.
Morningstar vs. competitors
Here’s a quick look at how Morningstar compares to investment research companies The Motley Fool Stock Advisor and Stock Rover.
Morningstar vs. Motley Fool Stock Advisor vs. Stock Rover
Research site | Cost | Best feature |
Morningstar | Free or $249 per year | Star-rated picks |
Motley Fool | $199/year | New stock picks monthly |
Stock Rover | $79.99 to $279.99/year | Active trading tools |
The Motley Fool Stock Advisor
The Motley Fool Stock Advisor has regularly outperformed the market as a stock-picking and research service. It’s best for people who plan to do a moderate level of trading, but it's educational services and investment advice can also be helpful for beginners.
One of its key features is the two monthly stock recommendations from its founders, Tom and David. They also share their “Best Buys” list to help guide stock picks for users.
Stock Rover
Stock Rover offers real-time information, and so much of it, that you may want to use two computer monitors at home to get the best view of all the information it offers. Using the mobile app on your phone probably won’t do the job.
Stock Rover has a robust, data-oriented platform that should be a good fit for day traders or anyone who makes trades often. It offers price alerts and so much information that users can be overwhelmed at first but should be able to find the information they need.
FAQs
What is fundamental analysis?
Morningstar offers a lot of what’s called fundamental analysis. This is a look at underlying data of a business to determine the true value of its shares. Morningstar does this in a number of ways, including looking at a stock’s past performance. A star rating is given to rate if a stock is undervalued, fairly valued, or overvalued. Five-star stocks are the most undervalued, while one and two stars mean they’re overvalued. Fundamental analysis helps give you a look at the intrinsic value of a company, and an undervalued stock is considered a discounted stock worth buying. Technical analysis, on the other hand, looks at historical trends and market patterns to determine future stock prices, using the market itself to predict stock behavior.
Should I pay for 1 year of service?
Not immediately. Like any other stock research website, you should check out the basic, free service Morningstar offers. It may be all you need to research investments. Morningstar’s basic service, however, isn’t that robust and you may want to try the Morningstar premium service for free with a 7-day trial, or pay $34.95 for one month. Before that first month ends you should determine if you still want to subscribe, and then change it to a one-year subscription for $249. If you don’t change it or don’t cancel you’ll continue being charged $34.95 per month, which adds up to $419 if the monthly charges continue for 12 months.
Why should I be a value investor?
Value investing means you’re looking for bargains. You shop for deals on clothing, groceries and gas, so why not your investments? Morningstar can help you find investments that are undervalued, meaning their share price is less than what it should be. This doesn’t guarantee the stock price will rise and you’ll make money, but it’s a good indicator of potential long-term value.
Use Motley Fool's Stock Advisor To Invest
- Over 100 Stock Picks with 100%+ Returns
- Averaged Stock Pick Return over 593% (vs. 165% for the S&P)
- 2 New Stock Picks Every Month
- Investment Community With 700,000+ Loyal Members
- 30-Day Membership-Fee-Back Guarantee
- Joy Wallet Reader Deal: The Motley Fool is offering 50% off its top stock-picking service for new members (Limited Time)
The bottom line
Finding undervalued investments can be a lot of work, but Morningstar makes it easy with its star rating system. Look at its star stocks, and you can easily find some stocks that should fit your investment strategy. The premium service can be worthwhile, especially when bought for one year, by giving you access to all its rating services.
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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