Hershey, Dick's Make Morningstar's Most Overvalued Stock List

Morningstar cites the 10 stocks it covers that were most overvalued compared with its fair-value estimates as of Feb. 24.

In a volatile stock market like the present one, investors can often find some good bargains. But be careful: It’s just as easy to come upon stocks that are overpriced.

Morningstar listed the 10 stocks it covers that were most overvalued compared with its fair-value estimates as of Feb. 24.

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Keep in mind that “most of the names on this list are good companies,” wrote Morningstar investment specialist Susan Dziubinski.

Seven of the companies have moats (durable competitive advantages), according to Morningstar analysts.

“Five of the companies are run by top managers who have a history of adeptly allocating capital and thereby receive the highest Morningstar capital allocation rating,” Dziubinski said.

“And perhaps most notable, two of the companies (Cintas  (CTAS) - Get Free Report and Hershey  (HSY) - Get Free Report) … are also among Morningstar’s Best Companies to Own, a list that features businesses scoring well on several quality-related metrics.”

That means great companies aren’t always ones you should buy now, Dziubinski said. “In fact, it can be a downright lousy stock to buy if it’s overvalued.”

The List

So here’s Morningstar’s roster of most overvalued stocks.

1. Mettler-Toledo International  (MTD) - Get Free Report, a scale and balance supplier. Morningstar fair value estimate: $830, recent quote: $1,464, 76% above fair value.
2. Old Dominion Freight Line  (ODFL) - Get Free Report, a trucking company. Morningstar fair value estimate: $217, recent quote: $354, 63% above fair value.
3. Dick’s Sporting Goods  (DKS) - Get Free Report, a sporting goods retailer. Morningstar fair value estimate: $82, recent quote: $129, 57% above fair value.
4. Cintas, a uniform seller/renter. Morningstar fair value estimate: $299, recent quote: $435, 45% above fair value.
5. Church & Dwight  (CHD) - Get Free Report, a baking soda producer. Morningstar fair value estimate: $58, recent quote: $84, 45% above fair value.
6. Idexx Laboratories  (IDXX) - Get Free Report, a veterinary diagnostics provider. Morningstar fair value estimate: $326, recent quote: $477, 46% above fair value.
7. Progressive  (PGR) - Get Free Report, the insurance company. Morningstar fair value estimate: $99, recent quote: $142, 43% above fair value.
8. Watsco  (WSO) - Get Free Report, a distributor of air-conditioning/heating products. Morningstar fair value estimate: $212, recent quote: $308, 45% above fair value.
9. Hershey, the candy company. Morningstar fair value estimate: $169, recent quote: $239, 41% above fair value.
10. W.W. Grainger  (GWW) - Get Free Report, a distributor of maintenance and repair products. Morningstar fair value estimate: $470, recent quote: $682, 45% above fair value.

Dick’s: Morningstar analyst David Swartz assigns the company no moat. “Dick’s Sporting Goods lacks an edge, as sporting goods are sold through many channels,” he wrote in a commentary.

“Although its sales have been very strong over the past two years, we believe a slowdown is likely, as growth in sporting goods retail has generally been minimal due to external competition.”

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Hershey: Here’s one of those strong companies. Morningstar analyst Erin Lash gives it a wide moat. “The resilience of Hershey’s stout brand mix and the prudence of its strategic course were again on display in the fourth quarter, as organic sales popped 10.7%,” she wrote.

But, “investors should exercise restraint, with shares trading at a 30%-40% premium to our intrinsic valuation,” Lash said.

The author of this story owns shares of Cintas.