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Stock Strategist

Newly Reminted Overvalued Stocks

If you missed your first chance, these stocks are priced to sell once again.

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Second chances are rare in the world of investing. Even the greatest investors (assuming a sliver of humility remains) will admit to numerous opportunities that stared them in the face but passed them by. Then, as expected, the stock rose or fell sharply (depending on whether it was to be a long or short bet), causing severe pangs for the informed, yet too hesitant, investor.

The stocks described below offer the ever-elusive second chance. A couple of months ago, these stocks traded at 25% or greater premiums to their fair values, putting them solidly in 1-star (overvalued) territory. Although these stocks were overvalued, prudent investors should have exited their positions, in our opinion. Realizing their fortuitous gains, they could reallocate the capital to undervalued names or simply build a cash position to be ready for better risk/reward opportunities. However, some investors undoubtedly missed the boat, as these stocks fell sharply along with the overall market, moving them from 1-star to 3-star (fairly valued) territory. Fortunately for those investors who missed their first chance, here's another: Each of these companies has rallied once again and is back in 1-star territory.  Western Digital Corporation's (WDC) fair value chart portrays this scenario.

Joel Bloomer does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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