Each week, we analyze U.S.-listed stocks that qualify for Morningstar assessments to pinpoint those that have recently become overvalued—essentially, stocks whose valuations have jumped to a range indicating a one or two-star rating. In the week leading up to February 13, 25 stocks received a new two-star rating, while eight more joined the list of 40 U.S.-listed stocks rated with one star.
Here are the five newly rated 2-star stocks that boast the largest market caps:
- Procter & Gamble PG
- Novartis NVS
- McDonald’s MCD
- Lowe’s Companies LOW
- Rolls-Royce Holdings RYCEY
Additionally, five new 1-star stocks with significant market capitalizations include:
- Mizuho Financial Group Manufacturing
- Itau Unibanco Holding ITUB
- Sherwin Williams SHW
- Hilton Worldwide Holdings HLT
- Vistra VST
You can find a full list of the newly rated 2-star and 1-star stocks at the end of this piece. The returns mentioned are in the stock’s base currency, and all the data is sourced from Morningstar Direct.
Understanding Morningstar Stock Ratings
Morningstar Ratings are designed to help investors sift through market fluctuations and identify truly undervalued or overvalued stocks. These ratings hinge on three primary factors: stock price, stock price, and—oh yes—stock price. Stocks that earn 4 or 5 stars are viewed as undervalued, while those with 3 stars are seen as fairly priced. Stocks rated with 1 or 2 stars are classified as overvalued.
Current Stock Valuation Trends
As of February 13, the Morningstar US Market Index decreased by 1.29% over the past week. Overall, the U.S. stock market appears slightly undervalued, trading roughly 8% below market capitalization-weighted fair value estimates.
From the 828 U.S.-listed stocks analyzed by Morningstar analysts:
- 35% are categorized as undervalued, 39% as fairly priced, and 26% as overvalued.
- There are 22 stocks that have recently become undervalued.
- 25 stocks gained a new overvalued rating.
- 8 stocks downgraded from 2-star to 1-star ratings.
- 5 stocks moved up from 1-star to a 2-star rating.
- No new overvalued stocks dropped from a 3-star rating to a 1-star rating.
- 18 stocks are no longer rated as overvalued.
This week’s new 2-star stock indicators
Procter & Gamble
- Morningstar Rating: ★★
- Fair value estimate: $148.00
- Uncertainty rating: Low
Procter & Gamble, known for its household and personal products, has seen a 0.57% gain over the last week, boosting its Morningstar rating from 3 stars to 2 stars. Its stock is currently up by 8.95% in the last three months but down 3.83% over the past year, trading about 8% above its estimated fair value of $148 per share, with a low uncertainty rating.
Novartis
- Morningstar Rating: ★★
- Fair value estimate: $140.00
- Uncertainty rating: Medium
Pharmaceutical giant Novartis rose by 4.27% last week, earning a 2-star rating after previously holding 3 stars. It has had robust performance lately, gaining 23.64% in the last three months and 56.99% over the last year. It’s trading at a 17% premium to its estimated fair value of $140 per share, with a medium uncertainty rating.
McDonald’s
- Morningstar Rating: ★★
- Fair value estimate: $307.00
- Uncertainty rating: Low
McDonald’s has risen 0.13% over the past week and upgraded to a 2-star rating from 3 stars. Its stock is currently 7% above the anticipated fair value of $307, reflecting a 7.15% increase over the past three months and an 8.14% rise over the year.
Lowe’s Companies
- Morningstar Rating: ★★
- Fair value estimate: $250.00
- Uncertainty rating: Medium
Lowe’s, the home improvement retailer, increased by 3.24% last week, moving from a 3-star to a 2-star rating. Over the past three months, it has gained 24.70%, while also achieving a 16.01% year-over-year increase. Its stock is now priced at a 15% premium to the estimated fair value of $250, with a medium uncertainty rating.
Rolls-Royce Holdings
- Morningstar Rating: ★★
- Fair value estimate: $14.80
- Uncertainty rating: High
Rolls-Royce has jumped by 4.01% recently, earning a 2-star upgrade from a previous 3-star rating. Over the last three months, it’s gained 19.38%, and has skyrocketed by 128.58% year-over-year. Currently trading at a 19% premium to its fair value estimate of $14.80 per share, it carries a high uncertainty rating.
This week’s new 1-star stock indicators
Mizuho Financial Group
- Morningstar Rating: ★
- Fair value estimate: $7.20
- Uncertainty rating: Medium
Following a 3.02% rise last week, Mizuho upgraded from 2 stars to 1 star. Over the past three months, it’s up by 45.80% and has seen a remarkable 82.61% increase in the past year, currently trading at a 38% premium to its estimated fair value.
Itau Unibanco Holdings
- Morningstar Rating: ★
- Fair value estimate: $6.80
- Uncertainty rating: Medium
Itau has risen by 1.89% over the past week, transitioning from a 2-star to a 1-star rating. Its stock price increased by 31.42% in the last three months and surged by over 102% in the past year. It is now 35% above the estimated fair value of $6.80 per share.
Sherwin-Williams
- Morningstar Rating: ★
- Fair value estimate: $268.00
- Uncertainty rating: Medium
Sherwin-Williams has gained 1.91% this past week, changing its rating from 2 stars down to 1 star. The stock has had modest gains of 9.13% over the last three months and 3.06% over the past year.
Hilton Worldwide Holdings
- Morningstar Rating: ★
- Fair value estimate: $234.00
- Uncertainty rating: Medium
Hilton saw a slight increase of 0.08% last week, resulting in its downgrade from 2 stars to 1 star. The hotel’s stock has grown by 16.64% over three months and 17.00% over the year, currently hovering around a 34% premium to the fair value estimate of $234.
Vistra
- Morningstar Rating: ★
- Fair value estimate: $97.00
- Uncertainty rating: High
Vistra’s stock rose by 14.59% last week, but it shifted down from 2 stars to 1 star. Over the last year, it has seen minimal 4.09% growth, currently trading at a significant 77% premium to the estimated fair value of $97.
