2 Newly Overvalued Stocks

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Each week, we screen the US-listed stocks under Morningstar’s coverage for newly overvalued names.

For the week ended Dec. 13, two stocks saw their Morningstar Ratings change to 2 stars, while another climbed into 1-star territory. Stocks rated 3 stars are fairly valued according to Morningstar analysts, while those rated 4 or 5 stars are considered undervalued.

The two new 2-star stocks, ordered by market cap, are:

• Trip.com TCOM
• Rockwell Automation ROK

The new 1-star stock is:

• Range Resources RRC

Newly Overvalued Stocks for the Week Ended Dec. 13

The Morningstar US Market Index fell 0.83% over the past week, leaving the overall US stock market significantly overvalued, hovering at an 11% premium to its fair value estimate on a cap-weighted basis.

Of the 877 US-listed stocks covered by Morningstar analysts:

• 32% are undervalued, 38% are fairly valued, and 30% are overvalued.
• Two are newly overvalued.
• 14 are newly undervalued.
• One moved from a 2-star rating to a 1-star rating.
• Among the newly overvalued stocks, none jumped from a 3-star rating to a 1-star rating.
• 14 are no longer overvalued.

Morningstar analysts assign every stock under their coverage a fair value estimate, which is an intrinsic measure of the stock’s worth, and an Uncertainty Rating, which captures the range of potential outcomes for that estimate. A higher rating equates to a larger range. These two metrics and the stock’s current price determine its Morningstar Rating.

Metrics for this Week’s New 2-Star Stocks

Trip.com

• Morningstar Rating: 2 stars
• One-Week Return: 5.04%

Travel services company Trip is up 53.42% over the past three months and 116.70% over the past year. The stock’s price is 21% above its fair value estimate of $60, with an Uncertainty Rating of High. The large-growth stock has a narrow economic moat.

Rockwell Automation

• Morningstar Rating: 2 stars
• One-Week Return: 0.60%

Specialty industrial machinery firm Rockwell has climbed 13.56% over the past three months and 4.05% over the past year. The stock is trading at an 11% premium to its fair value estimate of $267, with an Uncertainty Rating of Medium. Rockwell is a mid-core company with a wide economic moat.

Metrics for this Week’s New 1-Star Stock

Range Resources

• Morningstar Rating: 1 star
• One-Week Return: 4.98%

Oil and gas exploration and production company Range is up 22.05% over the past three months and 20.63% over the past year. The stock’s price is 57% above its fair value estimate of $22.50, with an Uncertainty Rating of High. The small-value stock has no economic moat.