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Still No Margin of Safety in the Stock Market

Last week's market decline has not left stocks cheap on the whole, but there are still some individual values to be had.

Jeremy Glaser 12.11.2012


Stocks have had a bit of a tumultuous in the past few weeks. Mixed earnings pointed to economic weakness overseas, Spain and the rest of Europe's sovereign debt woes remained in focus, and investors continued to fret over the fiscal cliff. The broad-based U.S. Market Index dropped recently, with a similar magnitude of decline across all parts of the Morningstar Style Box and across industry sectors.

But this modest sell-off has not left stocks particularly cheap, and given the huge amount of uncertainty that remains in the market, investors remain well-served by being selective in their stock investments.

The market is essentially fully valued at the moment. The current median price/fair value ratio for the entire market is 0.94 according to our equity analyst staff, not much lower than the 52-week high of 0.98 which the market hit in September. There is more of a valuation spread across sectors. Real estate is the most overvalued sector (median price/fair value of 1.06), and energy looks the cheapest (0.88) (Data as of Oct. 26, 2012).

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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