Four quality U.S. stocks that have lagged

Discounts to fair value are likely to narrow, Morningstar analysts say.

Vikram Barhat 28 September, 2016 | 5:00PM
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Low interest rates on both sides of the Canada-U.S. border have raised concerns about stretched valuations in the equity markets. Softness in economic data has led the U.S. Federal Reserve to take a dovish tone, leaving the federal funds rate unchanged at 0.5% on Sept. 21. Faced with continued meagre yields in the fixed-income markets, investors have been pushing up the prices of equities.

With fundamentals such as price-earnings ratios having become more expensive, the search for stocks with attractive valuations has become increasingly challenging. According to the Morningstar Market Fair Value chart, the average stock in its coverage universe is about 3% overvalued (at 1.03), a touch below the 52-week high of 1.04, as of Sept. 14.

But there are some stocks that aren't as pricey. Well off their 52-week highs, a few of them have lost 11% to 40% of their value since the beginning of this year. These are well known companies with strong fundamentals and sound growth prospects, but have been laggards during the market's current bull run.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Cognizant Technology Solutions Corp A78.52 USD-1.15Rating
Norwegian Cruise Line Holdings Ltd18.29 USD-4.54Rating
The Walt Disney Co146.22 USD-0.67Rating
Valero Energy Corp69.71 USD-2.05Rating

About Author

Vikram Barhat

Vikram Barhat  Vikram Barhat is a Toronto-based financial writer specializing in investing, stock markets, personal finance and other areas of the financial services industry. He also writes for CNBC, BBC, The Globe and Mail, and Toronto Star.

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