Susan Dziubinski: Hi. I’m Susan Dziubinski, co-host of The Morning Filter podcast. On a recent episode, Morningstar’s chief US market strategist Dave Sekera talked about how to know when it’s time to take profits on a core holding. Dave said that when a core holding moves too far into overvalued territory, especially if it’s becoming an overweight position in your portfolio, well, that’s when it may be time to take some profits.
With that in mind, today we’re highlighting three core stocks that look overvalued according to Morningstar. If you own these stocks, it might be time to take some of your chips off the table. And if you don’t own these stocks, we don’t think it’s a good time to buy them.
3 Core Stocks to Scale Back On
The first core stock to take profits in is Caterpillar. Caterpillar is considered a bellwether in the industrial sector, one of the world’s leading providers of heavy construction machinery and a major player in industrial engines and transportation products. Caterpillar has carved out a wide economic moat. That wide moat stems from the company’s significant intellectual property and switching costs. Its balance sheet is impressive, and management’s done an exceptional job of allocating capital. But we think this core stock is worth USD 620, and it trades well above that.
Read Morningstar’s full report on Caterpillar.
The next core stock to scale back in is Walmart. As the largest retailer in the world, Walmart maintains a wide economic moat based on cost advantages and intangible assets. We expect the company to remain competitive thanks to its scale, operational discipline, and continued reinvestment in technology and infrastructure. The company is financially healthy and generates strong free cash flow, too. Unfortunately, though, Walmart’s stock looks extremely overvalued. We think it’s worth USD 62.
Read Morningstar’s full report on Walmart.
The final core stock to pull back on is Honeywell. Honeywell is a global multi-industry conglomerate operating four business segments: aerospace technologies, industrial automation, energy and sustainable solutions, and building automation. We think Honeywell is one of the highest-quality companies among diversified industrials, and we assign the company a wide economic moat rating due to its intangible assets and switching costs. But Honeywell’s stock looks overvalued as it trades above our USD 198 fair value.
Read Morningstar’s full report on Honeywell.
For more stock insights, tune into The Morning Filter each week, wherever you get your podcasts, and visit global.morningstar.com, too.
Morningstar analysts Brett Husslein, Nicholas Lieb, and George Maglares provided the research behind this segment.
