These Four Stocks Look Overheated
After a robust rally, stocks look fairly valued overall, but these names still look richly priced.
The market rally since the March lows has been nothing short of breathtaking. Investors have cheered as the possibility of a second Great Depression ebbs and looser credit markets and economic indicators show signs of a nascent recovery. The rally has been sustained recently by second-quarter earnings reports that were generally better than horrific expectations (though most reports were still dreadful in an absolute sense). Management teams also fueled optimism by saying they see stabilization in the global markets, though few are reporting any signs of meaningful growth.
Despite all of these positive signs, there is still a ton of uncertainty and much to be worried about in the economy. Consumer confidence remains low, job losses are starting to decelerate, but still more than 500,000 people a week are filing new unemployment claims. Individuals and businesses are in the midst of a massive deleveraging process that could take years to unwind. Consumer spending tends to be a major impetus to economic recovery, and it is hard to see how that is going to turn strongly positive anytime soon.
There are also long-term concerns about the impact of the unprecedented monetary easing and fiscal stimulus currently sloshing through the economy. This money has helped stabilize the economy, but it could lead to higher inflation and an unsustainable budget deficit. Who knows if the economy will be able to maintain its trajectory when the federal government takes its foot off the pedal.
Jeremy Glaser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.