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US Market Remains Significantly Overvalued to Begin October

GuruFocus.com
·3 mins read

- By James Li

On Thursday, the first day of the new quarter, the U.S. stock market remains significantly overvalued according to Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B) CEO Warren Buffett (Trades, Portfolio)'s favorite market indicator. Several top gainers are also overvalued according to the GF Value Line, a new, website-exclusive way to measure stock valuations.


The ratio of the Wilshire 5000 full-cap index to gross domestic product stands at 177.6%, down 8.6% from the Sept. 1 value of 186.2% yet still close to an all-time high.

US Market Remains Significantly Overvalued to Begin October
US Market Remains Significantly Overvalued to Begin October

Dow ekes small gain to start new quarter

The Dow Jones Industrial Average closed at 27,816.90, up 35.2 points from Wednesday's close of 27,781.70 despite wavering between an intraday high of 28,041.46 and an intraday low of 27,669.26. Big Tech companies like Facebook Inc. (NASDAQ:FB), Alphabet Inc. (NASDAQ:GOOGL)(GOOG) and Microsoft Corp. (NASDAQ:MSFT) gained at least 1%, helping the markets close slightly above the flatline.

US Market Remains Significantly Overvalued to Begin October
US Market Remains Significantly Overvalued to Begin October

Stocks cut early gains, but remained higher as U.S. lawmakers said that they would eventually work out a new stimulus deal despite bipartisan discord on issues regarding state and municipal aid according to sources.

Market valuation page receives new "gainers and losers" section

According to the "Stocks: Gainers and Losers" section, a new section of the market valuation page, the top three gainers on Thursday were AMAG Pharmaceuticals Inc. (NASDAQ:AMAG), American Equity Investment Life Holding Co. (NYSE:AEL) and Bed Bath & Beyond Inc. (NASDAQ:BBBY).

Shares of Waltham, Massachusetts-based biotech company AMAG Pharmaceuticals closed at $13.65, up from the previous close of $9.40 on the heels of the company entering into a definitive agreement to merge with Covis Group.

Despite this, the stock is significantly overvalued with a share price that is 1.42 times the GF valuation of $9.61. According to the new feature announcement, the GF Value calculation values a stock based on three factors: a wide range of historical price multiples, an internal adjustment factor based on past returns and growth and estimates for future returns and growth.

US Market Remains Significantly Overvalued to Begin October
US Market Remains Significantly Overvalued to Begin October

American Equity Investment Life

Shares of American Equity Investment Life closed at $31.68, up 44% from the previous close of $22. Despite this, the stock is significantly overvalued with a price-to-GF-Value ratio of 1.40.

US Market Remains Significantly Overvalued to Begin October
US Market Remains Significantly Overvalued to Begin October

GuruFocus ranks the West Des Moines, Iowa-based company's financial strength 5 out of 10 on the back of debt ratios outperforming over 70% of global competitors despite equity-to-asset ratios underperforming 84.42% of global insurance companies.

Bed Bath & Beyond

Shares of Bed Bath & Beyond closed at $18.74, up 25.13% from the previous close of $14.98. Despite this, the stock is significantly overvalued with a price-to-GF-Value ratio of 1.37.

US Market Remains Significantly Overvalued to Begin October
US Market Remains Significantly Overvalued to Begin October

GuruFocus ranks the Union, New Jersey-based company's financial strength 4 out of 10: Although the company has a strong Altman Z-score of 3.19, debt ratios are underperforming 87.62% of global competitors.

Disclosure: No positions.

Read more here:

  • Asian Markets Offer Good Market Returns to Start 4th Quarter

  • 4 High-Quality Stocks With Strong Returns on Equity

  • 5 Buffett-Munger Stocks With High Dividend Yields



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This article first appeared on GuruFocus.