This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.

Vickers Stock Research, a subsidiary of Argus Research Group, tracks insider trading and institutional ownership. Form 13-Fs have now come in from 2Q21. We review the 13Fs of major activist investors, including Carl Icahn, Trian Fund Management, Jana Partners, and ValueAct Holdings, among others. Activist investing has evolved in and is now less about generating a short-term return on an underpriced stock and more about achieving long-term returns through an active management/investor partnership. Here are some recent new purchases and key holdings of Activist investors, according to Vickers.

Stock prices (as expressed by the S&P 500) are near all-time highs and, on earnings that are still recovering, are well above fair value (which our model pegs at closer to 3,500). Our stock-market valuation model takes into account factors such as stock prices, five-year normalized earnings (three historical years, two forward-looking), GDP, inflation, and T-bond and T-bill yields. We note that stocks rarely trade right at fair value. Since 1960, on average, the index has traded at a tight 2% above fair value, but the standard deviation to the mean is 16%. As such, we normally expect the S&P 500 to trade between 14% undervalued and 18% overvalued. At current prices, the stock market is more than 40% above fair value, implying that investors are quite optimistic about equities in the coming months. Though we are still bullish on the economy, earnings, and market recoveries, we'd feel better about the longer-term outlook for stocks if valuations were not so stretched. Several factors could improve valuations: a pull-back in stock prices (as occurred on Tuesday), perhaps related to fears of inflation or COVID-19 variants; lower bond yields; or better earnings, which we do expect to see in upcoming quarters.

Stocks were little changed on Friday morning as the major indices remained near record levels. Disney posted strong fiscal 3Q sales and earnings, benefiting from better-than-expected growth in Disney+ subscribers. Airbnb also reported above-consensus results, but warned that 3Q bookings could be hurt by a slowdown in vaccinations and the spread of the Delta variant. U.S. import prices pointed to more moderate inflation. The Labor Department said that import prices rose 0.3% in July, down from 1.1% growth in June and below the consensus forecast of 0.6%. The Dow rose 0.2%, the S&P rose 0.1%, and the Nasdaq was flat. Crude oil traded near $69 per barrel, while gold rose $14 to $1766 per ounce.

The U.S. housing market has been a positive contributer to the economic recovery from the pandemic, but some statistics have fallen from recent highs. As such, we no longer anticipate the housing sector will be a strong driver of above-trend GDP growth. The National Association of Realtors reported that existing home sales rose only 1% in June from May. The Commerce Department reported that new one-family homes were selling at a 676,000/year rate in June -- up from the 582,000 rate at the pandemic depths, but down from 993,000 in January 2021. Meanwhile, there is a similar story in housing permits. According to the Census Bureau, permits were being authorized in June at a 1.6 million rate -- better than the 1.1 million rate in April 2020 but down from 1.9 million in January 2021. While most of these indicators have cooled, housing prices have not. The S&P/Case-Shiller National Home Price Index for May showed that prices gained 16.4% year-over-year -- the highest gain in 15 years. High prices have loosened inventories: currently there is a 6.3-month supply of existing homes for sale compared to the average range of 4.5-7.5 months. On the other side of the pandemic, demand for homes -- with yards between neighbors and plenty of space -- seem likely to remain solid, supporting domestic economic growth. But the strong growth of the past few quarters will cool.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Bank of New York Mellon Corp (BK); Alphabet Inc (GOOGL); Emerson Electric Co. (EMR); TJX Companies, Inc. (TJX) and the Focus List deletions are D.R. Horton Inc. (DHI); Activision Blizzard Inc (ATVI); Trane Technologies plc (TT); Lazard Ltd. (LAZ).

This pick list highlights constituents of the Morningstar US Mid Cap Index that we believe offer investors the best risk-adjusted return prospects. The market capitalization range for U.S. mid-caps typically falls between $1 billion and $8 billion and represents 20% of the total capitalization of the U.S. equity market.

This pick list highlights constituents of the Morningstar US Large Cap Index that we believe offer investors the best risk-adjusted return prospects. Stocks of large-cap companies where neither growth nor value characteristics predominate. Stocks in the top 70% of the capitalization of the U.S. equity market are defined as large cap.