T Best Companies to Own: Methodology The companies on this list are covered by Morningstar Research Services’ equity analysts and have shares available to US investors. This means that Morningstar equity analysts have calculated fair value estimates for the shares of the companies that trade on US exchanges. As a result, most of the companies on this list are based in the US. Within that coverage list, the best companies meet the following criteria: Wide Economic Moat. The Morningstar Economic Moat Rating summarizes the length of a company’s competitive advantages. An economic moat is a structural feature allowing a firm to generate excess profits over a long period. If Morningstar Research Services believes that excess returns will persist for 20 years or more, that company earns a wide moat rating. Standard or Exemplary Capital Allocation.The stock’s Morningstar Capital Allocation Rating is an assessment of the quality of management’s capital allocation, with particular emphasis on the firm’s balance sheet, investments, and shareholder distributions. Capital allocation is judged from an equity shareholder’s perspective, considering companies’ investment strategy and valuation, balance-sheet management, and dividend and share buyback policies on a forward-looking basis. A company can receive an Exemplary, Standard, or Poor Capital Allocation Rating. Low or Medium Fair Value Uncertainty. The fair value Morningstar Uncertainty Ratingrepresents the predictability of a company’s future cash flows and, therefore, the level of certainty in the fair value estimate of that company. The Uncertainty Rating for a company can be Low, Medium, High, Very High, or Extreme. It captures a range of likely potential intrinsic values for a company based on the characteristics of the business underlying the stock, including such things as operating and financial leverage, sales sensitivity to the economy, product concentration, and other factors. The more predictable cash flows, the smaller the range of potential intrinsic values, the lower the uncertainty. What Gives a Company an Economic Moat? Companies with moats have one or more of the following characteristics: Network Effect. Lots of people are using the service, which then makes the service more valuable to the people who use it. Intangible Assets. Patents, brands, regulatory licenses, and other intangible assets can prevent competitors from duplicating a company’s products or allow the company to charge a significant price premium. Cost Advantage. Firms with a structural cost advantage can either undercut competitors on price while earning similar margins or charge market-level prices while earning relatively high margins. Switching Costs. When it would be too expensive or troublesome to stop using a company’s products, the company often has pricing power. Efficient Scale. When a niche market is effectively served by one or a small handful of companies, there is no room or incentive for potential competitors to enter the market. To maintain analysts’ independence, Morningstar Research Services does not publicly rate its parent company Morningstar Inc. Therefore, Morningstar, Inc. is not on the list of the best companies available to US investors. https://www.morningstar.com/stocks/best-companies-own-2026-edition

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