5 Overvalued UK Stocks

THE VALUE INVESTOR: These companies are trading at above their fair value estimate, as determined by Morningstar analysts. This could be a sell signal for some investors

Emma Wall 9 July, 2014 | 3:51PM
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Value investing is a method perfected by arguably the world’s greatest stock-picker Warren Buffett. The art of identifying stocks trading on the market for less than their intrinsic value – and snapping them up before an upward rerating has made the sage of Omaha billions of dollars.

But in order to effectively execute value investing, a share’s price compared to its fair value estimate must also be a sell signal as well as a reason to buy. Recently, Buffett reportedly slashed his Johnson & Johnson (JNJ) holding by 19 million shares, after the stock gained 56% in three years.

Morningstar equity analysts rate a selection of international stocks, calculating a fair value estimate, on which the star rating is based, in order for investors to determine whether these stocks are over or undervalued. The lower the number of stars, the more expensive the current share price is compared to the fair value estimate. Using Morningstar Select to screen the stocks, we have highlighted five one or two star UK stocks below.

United Utilities (UU.)

Star Rating: One Star

United Utilities Group is primarily a holding company for United Utilities Water, the country's largest regulated water and wastewater utility, serving customers in northwest England, including Manchester and Liverpool.

AstraZeneca (AZN)

Star Rating: Two Stars

The company sells branded pharmaceutical products across several major therapeutic classes, including gastrointestinal, cardiovascular, respiratory, cancer, immunology, neuroscience, and infectious disease. It derives from the United States slightly less than 40% of its sales.

BT Group (BT.A)

Star Rating: Two Stars

BT Group, formerly known as British Telecom, is the incumbent phone operator and largest supplier of fixed-line phone services in Britain with about 42% market share. BT is the largest supplier of high-speed Internet lines, including lines it wholesales.

Intercontinental Hotels (IHG)

Star Rating: Two Stars

InterContinental is the largest franchiser, manager, and owner of hotels in the world, as measured by total rooms, with more than 4,500 hotels in more than 100 countries in its system. Brands include the largest midscale hotel brand, Holiday Inn and Holiday Inn Express, and InterContinental and Crowne Plaza.

Reckitt Benckiser (RB.)

Star Rating: Two Stars

European firms Reckitt & Coleman and Benckiser combined in 1999 to form Reckitt Benckiser. The firm's products include a variety of household product and personal-care brands, such as Calgon, Lysol, Finish, and Mucinex, many of which have the number-one or -two position in their categories.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AstraZeneca PLC10,654.00 GBX0.34Rating
BT Group PLC157.45 GBX-0.85Rating
InterContinental Hotels Group PLC10,145.00 GBX-0.34Rating
Reckitt Benckiser Group PLC4,709.00 GBX-1.38Rating
United Utilities Group PLC Class A1,090.50 GBX-3.41Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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