Although the markets took a dive in the first quarter this year, the next three quarters could see a screaming recovery to new all-time highs. Many analysts and bears thought the markets were overvalued back in February before the coronavirus blew everything up, but does that change with markets even higher than they were back then?
Some investors famously believe that stocks only go up, and if you bought in April you would probably agree. However, most investors consider stocks in relation to their respective industries by using a price-to-earnings (P/E) ratio. Normally, we expect to see industries rising and falling, ultimately building out the market and sniffing out which industries are the cheapest using P/E ratios has been an effective strategy for years.
In August, the S&P 500 and Dow Jones industrial average ran especially hot, and they cooled off in September. Many believe this was a result of profit-taking, but it is logical to think that many saw this run-up in price not justified by the earnings base. With the most recent earnings season in the books, we have a better perspective now where the markets stand as a whole and what their valuations are. The question is whether some companies that have run too hot recently need to cool down.
Here 24/7 Wall St. looks at five of the most overvalued stocks in the S&P 500 on a P/E basis. We have included some analysis, a recent trading history on each stock and what analysts are saying about it. Note that the current P/E ratios are calculated with 2019 full-year earnings as the base, which seems like a good jumping-off point into 2020.
Genuine Parts
Genuine Parts Co. (NYSE: GPC) may not be a household name, but it comes in at number one on this list. Although the company only has a market cap of roughly $14 billion, it has a current P/E ratio of 3,901. For comparison, this is over 100 times greater than the current P/E ratio of the S&P 500. However, on a forward P/E basis, the ratio comes down to a more reasonable 16.9.
Genuine Parts stock has met resistance at about $100 since August as was below $95 on Monday, in a 52-week range of $49.68 to $106.84. The consensus price target is $101.38.
Tesla
Tesla Inc. (NASDAQ: TSLA) is one of the newest components of the S&P 500 and also one of the most heavily weighted. The stock has raced upward since April, and Tesla currently boasts a market cap of roughly $622 billion. The current P/E ratio comes in at an incredible 1,376, and the forward P/E ratio is also one of the highest in the index at 181.
Tesla stock has retreated a bit from the recent $695.00 52-week high but is way up from the 52-week low of $70.10. Analysts have a consensus price target of just $396.30.
Kinder Morgan
Kinder Morgan Inc. (NYSE: KMI) has been beaten up this year as the price of oil has suffered. It has a market cap of $32 billion and a current P/E ratio of 296. The forward P/E ratio is a more reasonable 15.6.
Kinder Morgan stock has drifted downward in recent days and was last seen below $14. The 52-week range is $9.42 to $22.58. The consensus price target is $16.66.
Marriott
Marriott International Inc. (NASDAQ: MAR) is one of many resort operators that has seen a huge drop in traffic as a result of the pandemic. The stock is still down 15% year to date, and the market cap is near $42 billion. The current P/E ratio is 245, and the forward P/E ratio is still a steep 52.6.
On Monday, Marriott stock fell below $125 for the first time in nearly a month. The 52-week range is $46.56 to $153.39, and the consensus price target is $119.75.
Welltower
Shares of Welltower Inc. (NYSE: WELL) are down 22% so far this year. The health care real estate investment trust’s market cap comes in at $27.5 billion, and the current P/E ratio is roughly 206. The forward P/E is still formidable at 100.5.
Welltower stock has traded above $60 since early November and has a 52-week range of $24.27 to $89.99. The consensus price target is $63.25.
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