Postelection Rally Pushes Dozens of Stocks into Overvalued Territory

Stock markets rallied after Donald Trump’s victory in the US presidential election, pushing dozens of names into overvalued territory.

Of the 888 US-listed stocks covered by Morningstar analysts, 44 saw their Morningstar Ratings change from 3 stars to 2 in the three days following the election. Stocks rated 1 or 2 stars are considered overvalued compared with the fair value estimates assigned by Morningstar analysts, those rated 3 stars are fairly valued, and those rated 4 or 5 stars are undervalued.

The full table of newly overvalued stocks can be found at the end of this story. The 10 newly expensive stocks with the largest market capitalization are:

• Tesla TSLA
• Visa V
• UnitedHealth UNH
• Mastercard MA
• Bank of America BAC
• Wells Fargo WFC
• ServiceNow NOW
• Honeywell International HON
• Union Pacific UNP
• Equinix EQIX

Overvalued Stocks by Sector

The Morningstar US Market Index rallied 3.87% over these three days, led by the financial services sector, which gained 5.91%. “Financials, particularly banks, are poised to benefit from eased regulatory restrictions and a steeper yield curve, which can make lending more profitable,” wrote Dominic Pappalardo, chief multi-asset strategist at Morningstar Investment Management. Of the newly overvalued stocks, 27% come from the sector.

Other notable contributors to the rally were consumer cyclicals, which gained 5.72% in the three days after the election, and industrials, which gained 4.69%. Small caps saw outsized gains of 4.98%.

The US stock market is trading at an 11% premium to its fair value estimate. Out of the 888 stocks under Morningstar’s coverage, 29.42% are rated 1 or 2 stars, compared with 25.54% before the election.

Metrics for the Largest Newly Overvalued Stocks

Tesla

Of all the newly overvalued stocks, Tesla saw the biggest price jump following Trump’s victory. In the three days after the election, Tesla surged 27.75%. The stock is trading at a 57% premium to its fair value estimate of $210 per share.

“Tesla CEO Elon Musk has campaigned for Trump and may serve as an advisor to Trump during his second term as president. While Tesla could benefit during a Trump presidency, we’re maintaining our $210 fair value estimate and narrow-moat rating. At current prices, we view Tesla shares as overvalued, with the stock trading more than 30% above our fair value estimate.

“While Tesla and its competitors may lose a $7,500 subsidy likely leading to lower sales, Tesla is better positioned to withstand the change as it is already profitable. Additionally, we think Trump would continue to enact tariffs to effectively keep lower-priced Chinese EVs out of the US market. This positions Tesla to maintain its market leadership position in the US.”

—Seth Goldstein, equity strategist

Visa

Credit services firm Visa gained 4.97% in the three days following the election. Over the past month, Visa is up 11.60%, and over the past year, the stock is up 27.37%. Visa is trading at a 14% premium to its fair value estimate of $272 per share, with a Morningstar Uncertainty Rating of Medium. The large-blend company has a wide moat.

UnitedHealth

Private health insurer UnitedHealth climbed 8.60% in the three days following the election. The stock is up 1.31% over the past month and 13.13% over the past year. UnitedHealth is trading at a 10% premium to its fair value estimate of $550 per share.

“With the Republicans winning key federal electable bodies (White House and Senate at the time of writing) in the US election, pressure on certain parts of the managed-care industry could ease a bit, while other areas would still face scrutiny, but at this point, we’re not changing any fair values. We still view pharmacy benefit management transparency as a key concern for both major political parties, but we expect potential legislation to be manageable for top-tier players like Cigna, CVS, and UnitedHealth.

“Medicare Advantage is currently facing many regulatory challenges under the Democratic Party leadership, including risk adjustments down toward traditional Medicare rates and weak star ratings that promise to constrain future bonus payments. However, the switch to Republican leadership could ease those pressures a bit, given the Republicans support these privatized plans for senior citizens. At the very least, we would expect regulators to stop turning the screws so hard on Medicare Advantage beyond current risk-adjustment initiatives that are projected to be completed in 2026, which would bode well for M&A-focused insurers like Humana, CVS, and UnitedHealth.”

—Julie Utterback, senior equity analyst

Mastercard

Credit services company Mastercard gained 3.80% in the three days after Trump’s victory. Mastercard stock has gained 3.91% over the past month and 33.01% over the past year. The large-blend company has a wide moat and is trading at a 12% premium to its fair value estimate of $465 per share. The stock has an Uncertainty Rating of Medium.

Bank of America

In the three days following the election, Bank of America stock rose 7.76%. Over the past month, the stock is up 9.34%, while over the past year, it has surged 69.13%. Bank of America is trading at a 16% premium to its fair value estimate of $39.50 per share, with an Uncertainty Rating of Medium. The large-value company has a wide moat.

Wells Fargo

Diversified Bank Wells Fargo climbed 7.76% in three days following Trump’s victory. The stock is up 19.97% over the past month and 82.17% over the past year, and it is currently trading at a 21% premium to its fair value estimate of $60 per share. The large-value company has an Uncertainty Rating of Medium and a wide moat.

ServiceNow

Software company ServiceNow gained 3.81% in the three days after the election. The wide-moat stock is up 11.40% over the past month and 63.77% over the past year. ServiceNow is 16% overvalued compared to its fair value estimate of $900 per share. The large-growth stock has an Uncertainty Rating of Medium.

Honeywell

In the three days after the election, conglomerate Honeywell rose 5.13%. Over the past month, the stock is up 7.91% and over the past year, it’s up 26.70%. The large-value stock has a wide moat and an Uncertainty Rating of Medium. It’s trading at an 18% premium to its fair value estimate of $197 per share.

Union Pacific

Railroad company Union Pacific gained 3.26% in the three days following the election. The wide-moat stock is down 0.78% over the past month and up 17.31% over the past year. Union Pacific’s stock is currently 10% above its fair value estimate of $218 per share. The large-value stock has a Medium Uncertainty Rating.

Equinix

Specialty REIT Equinix gained 1.33% in the three days after Trump’s victory. Over the past month, the stock is up 3.88% and over the past year, the stock is up 20.97%. Equinix is currently trading at an 11% premium to its fair value estimate of $810 per share, with an Uncertainty Rating of Medium. The large-blend stock has a narrow economic moat.