Why wide-moat stocks can carry high uncertainty

Impregnable competitive advantages don't necessarily guarantee predictable cash flows.

Susan Dziubinski 21 March, 2016 | 5:00PM

Question: How can a wide-moat stock, such as  Swatch (SWGAY), have a high uncertainty rating? If a company has a wide moat, how can there be uncertainty in the calculation of the intrinsic value?

Answer: While the Morningstar Economic Moat Rating and Uncertainty Rating are related, these independent measures gauge different things. As a result, wide-moat stocks can earn high uncertainty ratings. In fact, about one fourth of all wide-moat stocks earn uncertainty ratings of high or greater today.

The measures, defined

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Alphabet Inc A1,413.24 USD0.46

About Author

Susan Dziubinski

Susan Dziubinski  Susan Dziubinski is director of content for Morningstar.com.