September investing tip from Morningstar.com

Beyond Morningstar's 10-Minute Stock Test

You've run a stock candidate through Morningstar's 10-Minute Stock Test (August investing tip) and it passes. Now what?

Now you dig even deeper. Here are the next steps to take:

• Look for trends and eyebrow-raisers in a company's 10-year summary balance sheet, income statement, and statement of cash flows. You'll find these on Morningstar Library Edition in the Financial Statements section of our stock reports.
• Read the most recent 10-K filing. Unlike annual reports, this document is fluff-free. Pay particular attention to the management's discussion and analysis section. Here's where top management tells in fairly plain English why the results are as they are. Access 10-Ks by going to the SEC Filings section of stock reports. Because consistency is important, you'll want to take a look at a couple of 10-Ks, keeping an eye peeled for changes.
• Discover if management's compensation is reasonable and tied to a company's performance. You'll find this information in the SEC's DEF 14A form accessible through Morningstar Library Edition's SEC Filings section. Go to Other Forms at the bottom of the page. Click and then type DEF in the Form Type box.
• After you've done the above, it's time to value the stock. Of course, we've made this quite simple for the nearly 2,000 stocks our analysts actively cover. Just click on Analyst Research in any report and there it is. For stocks on which we don't issue written analysis, go to the Valuations Ratios section. Eyeballing the current, 10-year, and forward valuations should give you the answer you are seeking.

When you've done all this, you'll know whether the stock that first looked like a swan really is under the pretty feathers. And you'll feel a whole lot better about your purchase, even in volatile markets like we're now experiencing.

Morningstar.com is great tool for new and veteran investors. It's chock full of unbiased analyst reports, tools for evaluating your portfolio, and lessons on how to invest. The best part is that it's free to all valid library cardholders! Begin now or learn more.