A Morningstar calculation indicates U.S. stocks are 4% overvalued
The U.S. stock market is so expensive that only a handful of stocks quality as “five-star” names, according to Kunal Kapoor, the chief executive officer of Morningstar Inc., who nonetheless stressed that investors shouldn’t panic.
In a speech Wednesday at his company’s annual investment conference, Kapoor pointed to a Morningstar calculation of fair value for the U.S. market. Last year, it was at 0.86, meaning the market was 14% undervalued. “Generally speaking it was a good environment to invest in, even if it felt uncertain,” he said.
Now, the metric is at 1.04, indicating it is 4% overvalued; last week, it was 2% overvalued. “There are just nine stocks that would rate as five stars in our coverage universe,” he said.
The nine are Bed, Bath & Beyond BBBY, -0.53% , clothing company Hanesbrands Inc HBI, +1.77% , natural gas electricity company Calpine Corp CPN, -3.33% , McKesson Corp. MCK, +2.03% , pharmaceutical company Endo InternationalENDP, +1.17% , health-care giant Roche Holding AG RHHBY, +1.68% , Australian broadcaster Ten Network Holdings Ltd. TEN, -20.83% , Australian telecom Vocus Group VOC, +0.45% and Hong Kong-based conglomerate Beijing Enterprises Holdings Ltd. 0392, +0.13%
Morningstar defines a five-star stock as one where “appreciation beyond a fair risk-adjusted return is highly likely over a multiyear time frame.”
Kapoor didn’t give specific investment strategies, except to encourage investors to not panic and maintain their long-term strategies. “A retiree can generate 29% more income from proper planning alone,” he said, pointing to how overtrading can appreciably depreciate one’s return.
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“There were two kinds of advisors in the bear market of [the financial crisis],” he said. “The first type broke their rules. They panicked, moved to cask, broke from their asset allocations. They didn’t do all the things we aspire to do” as financial advisors.
“The second group also had it rough. But they stuck to their guns and did the right thing. They rebalanced, moved more assets into declining parts of the market, and ended up with really good results.”
Note: This article has been updated to include the nine stocks.[“Source-marketwatch”]