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Investing Specialists

Morningstar Runs the Numbers

We take a numerical look through this week's Morningstar research. Plus, our most popular articles and videos for the week ended Aug. 5.

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Inspired by Harper's Index (with a tip of the hat to FiveThirtyEight's Significant Digits blog), Morningstar Runs the Numbers uses a numbers-based approach to highlight recent Morningstar research, along with some outside news stories.

July's employment report came in well ahead of expectations with 255,000 jobs added, while the unemployment rate remained steady at 4.9%. Morningstar's Bob Johnson saw plenty to love in the report, but he had a few notes of caution:

On a year over year basis, we've still got the same trend where we're slowing overall employment growth. We started out probably at something that looked like 2.1% overall, everything in, payroll growth a year ago, and now we’re kind of down to about 1.7% growth, so we've slowed quite a bit there on that and that’s the thing to keep in mind. And we’ve got a very strong second-half comparison from last year where we added some incredible numbers, especially in November. So it will be interesting to see what happens in the second half.

While the U.S. discusses when to raise rates, the Bank of England is putting its foot on the accelerator to help the U.K. out of its post-Brexit rut. The central bank cut its key interest rate to 0.25% and has launched a new GBP 70 billion quantitative easing program. Morningstar U.K. senior editor Emma Wall spoke to Nick Dixon, investment director at Aegon, who said the rate cut should stave off a downturn, but he questions how long the low rate environment will last: 

Looser monetary policy, coupled with declining pound and a structurally high trade deficit, will lead to higher inflation. This may need to be checked by interest rate increases within 6 to 9 months, which are likely to rise faster and higher than current market expectations.

Erin Lash sees  Procter & Gamble (PG) fourth-quarter results as another sign the firm is making steady process in righting the ship. Organic sales were up 2% and gross margins expanded, and she sees the decline in operating margins as a sign management is committed to investing in the business. Erin sees value in the shares today:

In a sector where discounts are few and far between, P&G strikes us as an attractive investment, with shares trading 5% below our valuation, as we think the market remains reluctant to buy into our contention that P&G is poised to drive accelerating sales growth (to a mid-single-digit level the next several years).

$293 billion
Size of  PIMCO Total Return (PTTRX) at its April 2013 peak.

$86 billion
Size of PIMCO Total Return as of the end of June 2016. But where did that money go? Miriam Sjoblom explores which active and passive funds have been the biggest beneficiaries from the exodus from Total Return

 HollyFrontier’s (HFC) margin per barrel of oil fell by more than half in the second-quarter to $8.88 from $17.42 a barrel in the year-ago quarter. But Allen Good doesn't think this is indicative of HollyFrontier's long-term earnings potential and thinks the firm looks cheap:

While we don’t expect conditions to improve meaningfully this year, the shares appear to be overly discounting a recovery in market conditions and contributions from self-help initiatives during the next several years. As a result, we still see HollyFrontier as undervalued based on various valuation metrics, leaving it as one of the most attractive names we cover in the energy sector.

According to this Vanguard graphic tweeted by Meb Faber, Australian investors have the worst home country bias--the country represents 2.4% of the global index, but Australian investors have a 66.5% stake in domestic equities.

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