Morningstar Runs the Numbers

This week, we're looking at key numbers from quarter-end insights that appeared on Morningstar.com this week.

1.02 The market-cap-weighted price/fair value estimate ratio for our equity analysts' coverage universe is 1.02.

1.9% Morningstar's Bob Johnson thinks GDP growth for the U.S. economy will clock in at 1.9% next year. Johnson points out that the consensus for growth has been consistently high in recent years.

"Last year at this time, according to a Wall Street Journal poll, economists expected GDP growth of 2.6% on a full year-over-year basis for 2016. Instead, it now appears that 2016 growth will be in the neighborhood of 1.6%. The year before, everyone thought the economy had reached the lift-off point and growth would likely exceed 3% by a comfortable margin in 2015 (consensus forecasts were around 3.3%). Those forecasts turned out slightly closer to the mark but were still well above the actual growth rate of 2.6%.

This year expectations look high again, with a consensus forecast for 2017 of 2.4%. We believe 1.9% GDP growth will prove closer to the mark."

25% Dan Rohr writes that Morningstar sees the basic materials sector trading at a 25% premium to our estimate of its fair value on a market-capitalization-weighted basis. He says the "valuation disconnect" largely reflects our bearish long-term outlook for Chinese fixed-asset investment.

5 Stars

There are

says Jaime Katz. She flags

"We see Hanesbrands as one of the best opportunities for investment in the apparel space. We think the shares' current discount is unjustified, given an underappreciated margin expansion opportunity, contributions from two recently announced acquisitions, and the fact that replenishment category sales correct more quickly than general apparel."

4% Erin Lash sees consumer defensive stocks as offering only pockets of value despite the sector trading at a 4% discount to our fair value estimate.

$55 Although we boosted our short-term oil price outlook, our long-term oil price forecast of $55/bbl WTI is unchanged. Joe Gemino writes:

"Improved near-term fundamentals come at a cost, however. Even a modest recovery in oil prices will encourage U.S. shale producers to further ramp activity so that they eventually replace almost all 'removed' OPEC barrels with their own. Increased near-term shale activity means that oil prices are unlikely to remain elevated for long. The industry is awash in low-cost oil, and temporary OPEC cuts cannot alter this reality. Our long-term oil price assumption is unchanged."

3.5% Jim Sinegal spells out the factors that Morningstar expects to drive the 10-year Treasury rate to 3.5% in the coming years. But he doesn't think it will be a fast process.

"We think the underlying factors producing low interest rates--advances in technology, demographic trends, and the state of the global leverage cycle--will result in a gradual normalization rather than a quick return to historical norms."

$100,000 Worries abound over U.S. drug pricing, but Damien Conover thinks some of the pressure may be offset by new drugs, particularly in areas like oncology.

"Although the patient populations tend to be smaller in specialty areas like cancer, the strong pricing power of over $100,000 annually can easily turn the drugs into blockbusters. Also, payers tend to be more supportive of drugs in areas of unmet medical need over areas with minor drug advancement, such as allergies and blood pressure."

7% Industrials firms have outperformed the broad market in the fourth quarter, particularly after the election. The sector is now trading at a 7% premium to our fair value estimate. Matthew Young thinks some of this enthusiasm might be a bit premature.

"We think higher valuations following the election relate in part to investor optimism surrounding potentially stronger U.S. economic growth in the years ahead, driven in part by the prospect of fiscal stimulus such as corporate tax cuts. While there are exceptions, for the most part we think it's a bit early to bake such an outcome into our model assumptions and fair value estimates."

20%

Edward Mui sees some

. One of his investment ideas is mall-owner

"Trading approximately 20% below our fair value estimate, we think Simon's high-quality, productive assets and exemplary stewardship will continue to support solid performance despite online retailing headwinds."

$99

We think the market is

of

"Salesforce.com has evolved from a salesforce automation point vendor to a full-fledged cloud-based customer relationship management, or CRM, software behemoth. The company has been the key forerunner for software as a service, or SaaS, and we believe the firm is among the most advantageously positioned companies in software to capitalize on the ongoing secular migration to the cloud."

10% Travis Miller explored what impact rising rates have historically had on utility stocks. He thinks the sector could see a bigger impact from higher rates now that the spread between yields and the 10-year Treasury bond have shrunk. He also says investors should watch out for the potential of underperformance even if stocks don't fall in absolute terms.

"During the past 20 years, utilities underperformed the S&P 500 by an average of 10%, including dividends, when interest rates rose more than 30% in two years. Utilities still posted positive absolute returns in every period."

Most Popular Articles, Videos, and Securities

Most Popular Articles

• U.S. Shale Boom Finally Runs Out of Gas
• 3 (Very) Last-Minute Financial To-Dos for Retirees
• 3 Recommendations for Fund Companies Not Named Vanguard
• Bond Funds Year in Review: A Tale of Many Markets
• What Top Fund Managers Expect in 2017

Most Popular Videos

• An Excellent Vanguard Allocation Fund
• Kinnel: The Biggest Mutual Fund Stories of 2016
• Fidelity's 2016 Scorecard: Leaders and Laggards
• No Sign of Postelection Economic Surge
• Bank Loan Funds Could Soon Benefit From Rising Rates

Most Requested Stock Quotes Apple Berkshire Hathaway Amazon AT&T Gilead Sciences

Most Requested Stock Analyses

Bed Bath & Beyond

Williams-Sonoma

Allergan

Roche

Wells Fargo

Most Requested Fund Quotes Vanguard 500 Index Vanguard Dividend Growth Fidelity Contrafund Vanguard Wellesley Income Vanguard Health Care

Most Requested Fund Analyses

Vanguard Balanced Index

Vanguard Dividend Growth

Dodge & Cox International Stock

Vanguard Wellesley Income

Vanguard Wellington

Most Requested ETF Quotes Vanguard Total Stock Market ETF Vanguard High Dividend Yield SPDR S&P 500 Vanguard REIT ETF Vanguard 500 ETF

Most Requested ETF Analyses

Vanguard Small-Cap Value ETF

Vanguard High Dividend Yield ETF

Vanguard Dividend Appreciation ETF

Vanguard REIT ETF

Vanguard Total Stock Market ETF