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Today’s Undervalued and Overvalued Sectors

Though the market overall is fairly valued, basic materials stocks are the priciest while those in the communication services sector are attractive.

Morningstar.com

Nov 17, 2016

Is the market cheap or expensive, and what sectors offer the best opportunity today? This is the Market Fair Value update for Thursday, Nov. 17.

The market fair value shows the median price to fair value ratio of all of the individual stocks we cover. In essence it shows how big of a gap, on average, we see between market prices and our estimate of intrinsic value across the entire market or a specific sector.

Today's ratio for all rated stocks is 0.99. This indicates that the market is only slightly undervalued. That compares to a 52-week high of 1.04 seen back in early September and a 52-week low of 0.86 reached in February.

The most overvalued sector is basic materials at 1.16--that's 16% above our estimate of intrinsic value. This sector has been one of the best performing so far this year, rising over 16%, but we think the market is being too bullish on the prospect of Chinese demand.

The most undervalued sector is communications services at 0.87--that's 13% below our estimate of intrinsic value.

Some of the most attractively priced stocks in the communications services sector are: America Movil (AMX), KDDI (KDDIY), and Sky (SKYAY).

Morningstar.com 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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