3 Overvalued Stocks that have Made Great Gains

THE VALUE INVESTOR: These three stocks are trading at significantly more than their fair value according to Morningstar analysts. Is it time to trim profits?

Emma Wall 19 October, 2015 | 11:30AM
Facebook Twitter LinkedIn

The perfectly timed investment is bought low and sold high. It is also a near impossibility to execute. Even the professionals struggle to build the nerve to buy an unpopular asset and give up a stock which has made great gains.

But contrarian investing requires bravery – you have to be prepared to crystallise gains and risk missing out on a bit of upside. With that in mind, knowing a share’s fair value estimate can be, well, invaluable.

Morningstar equity analysts determine a stock’s “fair value” using discounted cash-flow which serves as the foundation for the Morningstar Rating for stocks. The current stock price relative to Morningstar’s Fair Value Estimate, adjusted for uncertainty, determines the Morningstar Rating for stocks. The Morningstar Rating for stocks is updated each evening after the market closes – one star means a stock is trading a level considerably higher than the fair value, three stars is on par, and five stars means it is significantly undervalued.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

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.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Reckitt Benckiser Group PLC6,488.00 GBX-0.03Rating
United Utilities Group PLC1,021.50 GBX1.14Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement