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Stock Market Outlook: A Dearth of Opportunity Amid the Rally

4- and 5-star stocks are harder to come by in today's market, but a few stock-specific stories are still out there.

  • The Morningstar Global Markets Index has returned more than 23% over the past year.
  • The market-cap-weighted price/fair value ratio for our equity analysts' coverage universe is 1.06.
  • Communication services is the most undervalued sector, with a price/fair value ratio of 0.93. Basic materials is the most overvalued sector, with a price/fair value ratio of 1.39.

Although communication services does stand out as the most undervalued sector when looking at price/fair value of the companies we cover, we don't have any 5-star ratings on communication services companies, and in fact only 12 companies in this sector sport a 4-star rating.

This speaks to the overall dearth of 5-star or even 4-star opportunities we see today. That said, one of the most important stories we're telling about the communication services sector is that

Another stock-specific story we're telling is for

More broadly speaking, the most emphatic message from our coverage universe is that the basic materials sector is overvalued. The miners we cover are particularly overvalued, reflecting our expectation of a structural change in demand growth from China as its economy matures and transitions toward less commodity-intensive economic growth.

Take

In the reports below, get our sector-by-sector take on the biggest themes and the best remaining opportunities today.

Quarter-End Insights

Credit Market Insights: Flattening Yield Curve Impacts Performance Basic Materials: The Most Overvalued Sector We Cover Energy: A False Sense of Security for Oil Markets Communication Services: A Deal Eludes Sprint and T-Mobile Consumer Cyclical: E-Commerce a Key Threat for Some, But Not All Consumer Defensive: Hungering for Top-Line Gains Financial Services: Asset Managers Are Forced to Adapt Healthcare: Pick Carefully as Valuations Head Higher Industrials: Pockets of Uncertainty Present a Few Opportunities Real Estate: Slow but Steady Climb Continues Technology: Most Bellwethers Are Overvalued Utilities: A Weak December Could Foreshadow a Tough 2018 Venture Capital Outlook: Dry Powder for Late-Stage Deals Private Equity Outlook: Eyewatering Acquisition Multiples Crypto Asset Outlook: Installation Phase

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About the Author

Elizabeth Collins

Head of Credit Operations and Standards

Elizabeth Collins, CFA, is global head of equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. In this role, she leads the global equity research team, which focuses on providing in-depth, fundamental equity research based on sustainable competitive advantages and long-term valuation analysis. Collins is a member of the Morningstar Research Services Economic Moat committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar. She serves on the regulatory governance board for Morningstar Credit Ratings, LLC. Collins is also coauthor of Why Moats Matter: The Morningstar Approach to Stock Investing, published by John Wiley & Sons in 2014.

Before assuming her current role in 2018, Collins was director of North American equity research. She has also served as director of basic materials equity research, chair of the Morningstar Research Services Economic Moat committee, and a senior analyst on the energy team. She joined Morningstar in 2005. Previously, Collins worked as a youth program coordinator for a public housing community organization in Boston.

Collins holds a bachelor’s degree in psychology from Boston College and a master’s degree in business administration from DePaul University. She also holds the Chartered Financial Analyst® designation.

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