Abstract
In this paper we evaluate the relationship between quality investing combined with Economic Moat, ESG (Environmental, Social and Governance) and analyst opinions over the period 2014-2020 (28 quarters) based on a dataset comprising 803 US stocks rated by Morningstar. Performance is evaluated mainly in terms of alphas (six factor model). Our results show that quality stocks measured by ROIC exhibit superior performance. The incorporation of competitive advantages (Morningstar’s Economic Moat) allows a better discrimination among the classic high-quality strategies. Investment in stocks with quality and high ESG entails the payment of a premium but buying quality companies with Economic Moat makes up for this negative aspect. The Morningstar Star Rating is not significant when we control the performance by, for instance, sector or size and considering Economic Moat, but it is the average Price-to-Price target (Analyst consensus). Our results show that conventional quality strategies can be improved via the incorporation of a company's competitive advantages and, above all, by Analyst consensus regarding the potential for stock revaluation.
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