As Markets Hit Records, Stocks Look Somewhat Overvalued

With the the S&P 500 and Dow reaching an all-time high this week, we thought it would be a good time to check in on our market fair value.

This metric 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.

The current ratio for all rated stocks is 1.03. This indicates that the market is slightly overvalued. That compares to a 52-week high of 1.11 seen in January and a 52-week low of 0.97 reached in April.

There isn't a large gap in average valuations by sector. The most overvalued sector is industrials at 1.06--that's 6% above our estimate of intrinsic value. The consumer cyclical and healthcare sectors are close behind, each looking 5% overvalued.

The most undervalued sector is energy at 0.96--that's 4% below our estimate of intrinsic value. Some of our top picks in the space include Enbridge, Cenovus Energy, and Royal Dutch Shell.