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Stock Strategist

Four Stocks With Room to Fall

The rally may have cooled, but these shares are still overheated.

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The market finally took a breather in January. After a remarkable rally from its lows in March 2009, most major indexes were down last month. The S&P 500 and the Dow lost more than 2% and the Nasdaq was off by more than 3.5%.

This pullback was not completely unexpected. At the beginning of the month our analyst staff thought that stocks were about 4% overvalued. This is a far cry from the almost 40% undervaluation the analysts saw in March. From a valuation standpoint, the furious rally looks over. The economic recovery, and subsequent recovery in corporate earnings, is already priced into shares, and returns look set to be much more subdued going forward.

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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