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Utilities Look Expensive but Some Value in Consumer Cyclical

The market as a whole still looks overvalued, but there are a few sectors that look less pricey.

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Is the market cheap or expensive? What sectors offer the best opportunity today? This is the market fair value update for Saturday, May 27.

The market fair value shows the median price/fair value ratio of all of the individual stocks we cover. In essence it shows how big of a gap, on average, we see between market prices and our estimate of intrinsic value across the entire market or a specific sector.

 

Today's ratio for all rated stocks is 1.03. This indicates that the market is overvalued, but slightly less so than it was in March when the ratio hit its 52-week high of 1.05. The lowest it's been over the last year is 0.95 in June of 2016.


Valuations across sectors are quite uneven. One of the most overvalued sectors is utilities at 1.10--that's 10% above our estimate of intrinsic value. Utilities stocks have been driven up by, among other reasons, investors seeking income in the current low-yield environment.

The most undervalued sector is consumer cyclical at 0.97--that's 3% below our estimate of intrinsic value.


Some of the stocks in the consumer cyclical sector that look most attractive today are Hanesbrands, Tractor Supply, and Williams-Sonoma.


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