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Bargain-Hunters Should Look to Large-Value Stocks

Current market valuations present few attractive buying opportunities, but large-value stocks represent one of the few undervalued areas of the style box.

Tim Strauts: Today, we are going to look at U.S. stock market valuations through the lens of Morningstar's [Quantitative Fair Value Estimates]. Fair values are assigned by Morningstar's equity analysts. When a stock isn't covered by an analyst, our quantitative price/fair value methodology is used. These fair values are rolled up to the market level to provide macro insights. 

In the first chart, you see the typical Morningstar Style Box, with size of company on the vertical axis and style on the horizontal. Today, the market is approximately 4.3% overvalued. Growth stocks have outperformed value stocks over the last three years, which has raised their valuations. The growth and blend styles are 6.9% and 8% overvalued, respectively. After very strong performance over the last five years, mid-cap stocks are 7.2% overvalued, with the most overvalued region being mid-cap growth at 11.2%. The only undervalued regions are large value and small value.