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Stock Strategist

The Market's Most Overvalued Stocks

Consider selling these pricey shares.

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Equity valuations as a whole barely budged in 2005, but the market remains a bit on the pricey side when compared to Morningstar's collective fair value estimates (To see more on Morningstar's perspective on market valuations, check out our Market Valuation Graph). The median stock in our coverage universe of 1,700 stocks is now trading at nearly a 10% premium to our estimate of its fair value. However, within our overall coverage universe, there remain plenty of stocks that are trading at significant discounts or premiums to our fair value estimates.

For today's Stock Strategist, we'll take a look at some stocks at the high end of the range: those trading at prices more than 2 times our estimate of the company's underlying fair value. Nearly 100 stocks were pricey enough to pass this screen as of Jan. 11, 2006. All of these stocks are expensive enough that we'd consider selling them, but we narrowed the list a bit further by screening for stocks lacking an economic moat and showing an above-average level of business risk.

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Mitchell Corwin does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.