Weekly Wrap: Dow Hits 20,000, J&J Looks for Growth

Jeremy Glaser: The Dow crosses 20,000, United Technologies is undervalued, and Johnson & Johnson looks to buy growth. This time on the Morningstar Weekly Wrap.

After flirting with the milestone for weeks, the Dow Jones Industrial Average broke through the 20,000 ceiling on Wednesday. New records often lead investors to consider if the market is overvalued, particularly when they come on the end of a multiyear rally. Morningstar's equity analysts see the market as only slightly overvalued today, but that of course doesn't mean that a correction or even a bear market isn't a real possibility in the short term. An event like this can be a good chance for investors to take a peek at their portfolios to ensure that the runup in equities hasn't thrown their asset allocation out of whack.

United Technologies' slow fourth-quarter earnings didn't dent analyst Barb Noverini's conviction that the firm has strong long-term prospects.

Barb Noverini: It hasn't been easy to find value in the diversified industrial space following the postelection rally, but we still consider wide-moat United Technologies to be a top pick. This week, the company reported two significant points of progress. First, it delivered 62 new gear turbofan engines, its highest quarterly output to date. Secondly, it reported market share gains for Otis Elevators in the important Chinese market. Although we think near-term earnings will be challenged by higher production costs due to the new engine program, we still consider this to be an attractive entry point for longer term investors.

Glaser: Damien Conover thinks that Johnson & Johnson's challenged growth prospects are a big driver of its acquisition strategy.

Damien Conover: Johnson & Johnson announced the acquisition of Actelion, and we believe it was really driven by the slowing growth rate that the company is generating with its drug division. It's facing a lot of patent exposure and a lot of mature drugs that just aren't growing as quickly. In response to this, we think Johnson & Johnson slightly overpaid for Actelion, and we are bringing down our fair value down to $108 a share. We currently view Johnson & Johnson as largely fairly valued. While we expect steady growth going forward, we do think that it is not growing fast enough to really suggest higher upside to its current valuation. When we think about acquisitions across the board, we think a lot of these pharmaceutical firms that generate great cash flow do need to redeploy capital to augment internal growth, and we think that led to a bit of a bidding war for Actelion. Hence, the very high price that J & J paid for the company.

Glaser: In case you missed it, this week Morningstar announced the winners of the 2016 fund manager of the year.