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Commentary

No Shortage of Pricey Stocks Today

Ahead of the fiscal cliff and other uncertainties, there are plenty of pricey stocks from which investors should steer clear.

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This was a very unusual week for the markets. After the devastation of Hurricane Sandy, the stock exchanges shut down for two days, coming back on line Wednesday as much of the Northeast was still in the early stages of recovery from the storm. Then there was the flurry of economic data from October, including the final jobs report before the election. Add in more third-quarter earnings reports and some surprising merger and acquisition news and the market had plenty to mull over. But despite all this news, stocks ended the week about where they started.

With no big changes in share prices (or in our analyst's reckoning of what stocks are worth), valuations remain very full. The median price/fair value ratio of Morningstar's coverage universe stands at 0.96. The price/fair value ratio of the individual sectors ranges from 1.06 for real estate to 0.88 for energy. Last week we explored how in this market investors needed to carefully consider stock selection before diving into the market. But just as important as looking for very cheap stocks to invest in, is avoiding pricey stocks.

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