3 Stocks that Look Expensive

Morningstar equity research implies these three European companies are trading well above their intrinsic worth

Holly Cook 12 November, 2014 | 8:00AM
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Holly Cook: Morningstar analysts seek to identify quality companies by looking for those that have a sustainable competitive advantage, otherwise known as an economic moat. They then use a discounted cash flow model to provide a value for that company's shares. We then compare the current market value of the stock to our analysts' fair value estimate and that gives us a Star Rating. So, those companies that are currently trading considerably higher than their fair value estimate will get a low Star Rating, one star being the lowest; and those that are trading considerably lower than their fair value estimate will get a high Star Rating, with five being the highest.

Looking at our current European coverage, we've identified three companies that right now are looking rather expensive.

The first is Smith & Nephew (SN.). This medical devices manufacturer is trading well above our 783 pence fair value estimate.

The second is Red Electrica de Espana (REE). REE, as it's known, operates the electricity network in Spain and the shares are currently trading close to EUR 70, which is way above our EUR 47 estimate.

And the third and final is ASML Holding (ASML). This technology company, which builds elements crucial for chips that are put in everyday devices such as mobile phones, is valued at EUR 37 by Morningstar analysts.

There are many more that are also looking pricey including AstraZeneca, InterContinental Hotels, Imperial Tobacco and Reed Elsevier.

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
ASML Holding NV966.50 EUR-1.76Rating
Red Electrica Corporacion SA16.90 EUR0.00Rating
Smith & Nephew PLC990.80 GBX0.30Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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