Post by Dividavi on Jun 6, 2023 20:32:20 GMT
It's Time To Sell 3 Of The S&P 500's 10 Best Stocks, Says Morningstar
finance.yahoo.com/m/350cb3ab-5a3e-32ea-854d-59b284c546e9/it-s-time-to-sell-3-of-the.html
MATT KRANTZ08:00 AM ET 06/06/2023
Just 10 stocks are doing all the lifting on the S&P 500 this year. But it's looking like too much of a good thing: Now three of them are overvalued, Morningstar says.
Apple (AAPL), Nvidia (NVDA) and Broadcom (AVGO) — which together account for nearly 40% of the S&P 500's market-value gain this year — are trading for more than they're worth, says a new report by David Sekera, U.S. market strategist at Morningstar. And only one of the S&P 500's top 10 market-value-driving stocks — Alphabet (GOOGL) — is still undervalued.
Seeing all these giant stocks overvalued is a new development this year. Coming into 2023, nine of the 10 S&P 500 stocks to drive the market were considered undervalued by Morningstar. "(The) technology sector (is) becoming overvalued as stocks surge on excitement surrounding artificial intelligence," the report said.
On its surface, the S&P 500 looks like it's thriving. The SPDR S&P 500 Trust ETF (SPY) is up nearly 12% this year. That's enough to put $3.8 trillion of wealth into investors' pockets.
But if you dig a little, you see just how precarious the situation is. Just 10 stocks are driving all the gains. In addition to Apple, Nvidia and Broadcom, stocks powering the S&P 500 are Microsoft (MSFT), Amazon.com (AMZN), Meta Platforms (META), Tesla (TSLA), Advanced Micro Devices (AMD) and Salesforce (CRM).
The rally is top-heavy on growth stocks, Sekera says. "The rally thus far this year has been heavily concentrated in the growth category, which has soared 19.29%, whereas core stocks have lagged, only rising 2.11%, and value has lost ground, at negative 2.23%," he said.
Morningstar now thinks large-cap S&P 500 growth stocks are fully valued. But value-priced stocks, especially smaller ones, are roughly 40% undervalued. Energy stocks are also undervalued.
What does this mean if you own the tech stocks that have run up this year? Sell, Morningstar suggests.
"The technology sector is now the most overvalued sector, trading at a 4% premium over our intrinsic valuations, whereas at the beginning of the year it traded at a 19% discount," Sekera said. "While select individual opportunities remain, from a sector perspective, we now think this is a good time to take profits and move toward an underweight position."
Most Top Techs Are Overvalued
Biggest contributors to the S&P 500's gains this year
Company Symbol Contribution to S&P's 2023 gain Year-to-date change Morningstar Stars Valuation
Apple (AAPL) 20.10% 38.20% 2 Overvalued
Microsoft (MSFT) 19.2 40.1 3 Fair value
Nvidia (NVDA) 16.2 168 2 Overvalued
Alphabet (GOOGL) 12.2 42.8 4 Undervalued
Amazon.com (AMZN) 11.3 49.2 3 Fair value
Meta Platforms (META) 10.1 125.5 3 Fair value
Tesla (TSLA) 8 76.7 3 Fair value
Broadcom (AVGO) 2.7 43.5 2 Overvalued
Salesforce (CRM) 2.3 58.3 3 Fair value
Advanced Micro Devices (AMD) 2 82.1 3 Fair value
Sources: Morningstar, S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz