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Stock Analyst Update

Market Rebound Leaves These Two 5-Star Stocks Behind

Two stocks with 20%-plus expected returns.

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Following is a roundup of stocks that recently jumped to 5 stars. By way of background, we award a stock 5 stars when it trades at a suitably large discount--i.e., a margin of safety--to our fair value estimate. Thus, when a stock hits 5-star territory, we consider it an especially compelling value.

As the U.S. stock market plunged during the first weeks of January 2008, more and more high-quality stocks sank into 5-star territory each week, creating opportunities for astute investors willing to weather the storm. Last week, buyers were rewarded, as the market rebounded sharply, lifting the Dow Jones Industrial Average 4.4%. These market gyrations are not for the faint of heart, and at Morningstar we tend to overlook short-term stock-price movements, instead anchoring investment decisions to the fundamental values of the underlying businesses. This strategy allows us to separate market "noise" from the individual businesses' true worth, and take advantage of potential mispricings.

Jeff Viksjo does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.