The U.S. stock market finished 2024 up 24% as measured by the Morningstar U.S. Market Index, investment specialist Susan Dziubinski reported in a blog post this week.
At the start of 2025, stocks look fairly valued, according to Morningstar’s metrics. The U.S. stock market was trading at a price/fair value ratio of 1.04, Dziubinski said.
What might that mean for the year ahead?
“Since 2010, less than 10% of the time has the market traded at a 4% premium or more to our valuations,” Morningstar chief U.S. market strategist David Sekera wrote in his 2025 stock market outlook. “With the market trading at the high end of our fairly valued range, positioning is increasingly important.”
Dziubinski described how stock market valuations look through two different lenses. By investment style, small value stocks are the most undervalued stocks right now, trading 27% below Morningstar’s fair value estimate. Meanwhile, large growth stocks are 28% overvalued.
By sector, consumer cyclical and financial services stocks look the most overvalued in the new year, while real estate and energy stocks are the most undervalued.
See the gallery for 33 undervalued stocks across 11 sectors, as of Jan. 10.
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