Stock Market Outlook: Finding Opportunity Beyond Mega-Caps
Although the market's largest names are pricey, we see several pockets of value.
During the third quarter, broad market indexes continued their march higher. Quarter to date through Sept. 25, the Morningstar US Market Index has risen 7.8%, which places it in the green, with a year-to-date return of 3.8%. By aggregating the fair value estimates of the 825 stocks in our North American coverage, we see the broad equity market trading near fair value. However, the broad market-cap-weighted valuation is upwardly skewed by several significantly overvalued mega-cap stocks. Still, pockets of undervaluation remain. Across our North American coverage, we rate 36% with 4 or 5 stars. Analyzing our coverage with the Morningstar Style Box reveals that the greatest number of undervalued stocks reside in the mid-cap category and that the highest percentage of 4 or 5 stars are found in the small-cap space.