The S&P 500 is up 12% in the past three months, driving stock valuations higher.
It is therefore not surprising that as of January 9, 130, or 15%, of the 847 stocks covered by Morningstar analysts were overvalued relative to analysts’ fair value estimates. That compares with around 30%, or 253 shares, a year ago. Public services in particular were overvalued, 46% of them.
Here are the 10 most overvalued Morningstar-covered stocks as of January 9, starting with the most overvalued. (The numbers below are from January 13.)
TAL Education Group (OF) – Get a free report, a tutoring service in China. Morningstar Fair Value Estimate: $5.60. Recent price: $8.64.
Hess (HE’S) – Get a free report, an oil producer. Fair value estimate: $88. Recent price: $152.
Dick’s Sporting Goods (dks) – Get a free report. Fair value estimate: $82. Recent price: $129.
Old Dominion Freight Line (ODFL) – Get a free report, a trucking company. Fair value estimate: $201. Recent price: $315.
ribbons (ACTS) – Get a free report, uniform rental company. Estimated fair value: $292. Recent price: $449.
church and dwight (coronary cardiopathy) – Get a free report, the world’s largest producer of sodium bicarbonate. Fair value estimate: $58. Recent price: $82.
Weston Lamb (L.W.) – Get a free report, a producer of potato products. Fair value estimate: $70. Recent price: $98.
devon energy (dvn) – Get a free report, an oil producer. Fair value estimate: $45. Recent price: $63.59.
O’Reilly Automotive (ORLY) – Get a free report, an auto parts retailer. Estimated fair value: $600. Recent price: $815.
Trane Technologies (TT) – Get a free report, a manufacturer of heating/cooling systems. Estimated fair value: $129. Recent price: $183.
Hesse: “The good news is already priced in,” Morningstar analyst Dave Meats wrote in a comment. “Apparently the market takes a more bullish view than we do on long-term commodity prices.”
While he sees oil prices staying high through 2023, he sees the (European) Brent price falling to $60 a barrel over the long term from a recent price of $84.
Dick’s: “While its sales have been very strong over the past two years, we believe a slowdown is likely as growth in sporting goods retail has been minimal overall due to outside competition,” the analyst wrote. from Morningstar David Swartz in a commentary.
“Operating margins have already begun to trend downward, at a value of 13.4% in the last 12 months to October 31.”
Former Domain: “I suspect the market differs from us in terms of our mid-cycle (earnings) margin forecast,” Morningstar analyst Matthew Young wrote in a comment.
“We take a more conservative stance, not because of execution, but because LTL (less load) shipping is a competitively priced and cyclical business.”
Ribbons: “Cintas has claimed that its products and services are of higher quality, but we remain skeptical that its offerings are better enough to outperform other industry players,” said Joshua Aguilar, an analyst at Morningstar.
A recession could make the company suffer. Cintas is “highly cyclical” as its even core segment depends on the strength of the labor market, he said.
The author of this story owns shares in Cintas and Lamb Weston.
