On Thursday, the modified version of Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator stood at 149.7%, up from the June 2 reading of 147.2%. Several major mega-cap stocks like Apple Inc. (AAPL, Financial), Microsoft Corp. (MSFT, Financial) and Alphabet Inc. (GOOGL, Financial)(GOOG, Financial) remain significantly overvalued based on GuruFocus’ exclusive valuation method.
U.S. stock indexes build on strong first half
The Dow Jones Industrial Average opened at 34,507.32, up approximately 5 points from Wednesday’s close of 34,502.51. The 30-stock index has gained approximately 12.7% in the year to date while the Standard & Poor’s 500 index gained approximately 14.4% in the year to date and 2.2% in June.
According to CNBC, Leuthold Group Chief Investment Strategist Jim Paulson said that welcoming news on the coronavirus pandemic, vaccinations, reopenings and economic growth fueled growth in the market indexes during the second quarter.
Markets remain highly overvalued
The ratio of total market cap to the sum of gross domestic product and the total assets of the Federal Reserve stood at 150%, implying an average return of -1.5% per year assuming that market valuations reverse to the 20-year median market valuation ratio of approximately 91%.
According to the predicted and actual returns chart, the implied market return per year ranges from -5.6% in the pessimistic case of reversion to 70% of the median valuation level to 1.6% in the optimistic case of reversion to 130% of the median valuation level.
Apple
Shares of Apple (AAPL, Financial) traded around $136.42, showing that the stock is significantly overvalued based on Thursday’s price-to-GF Value ratio of 1.51. The stock has gained approximately 3.54% over the past six months.
GuruFocus ranks the Cupertino, California-based consumer electronics giant’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 7 and an operating margin that outperforms more than 96% of global competitors.
Gurus with large holdings in Apple include Buffett’s Berkshire and Ken Fisher (Trades, Portfolio)’s Fisher Investments.
Microsoft
Shares of Microsoft Corp. (MSFT, Financial) traded around $270.43, showing that the stock is significantly overvalued based on Thursday’s price-to-GF-Value ratio of 1.38. The stock gained approximately 22.30% over the past six months.
GuruFocus ranks the Redmond, Washington-based software giant’s profitability 8 out of 10 on several positive investing signs, which include a high Piotroski F-score of 8 and an operating margin that has increased approximately 4.3% per year on average over the past five years and is outperforming more than 96% of global competitors.
Alphabet
Class A shares of Alphabet (GOOGL, Financial) traded around $2,443.70, showing that the stock is significantly overvalued based on Thursday’s price-to-GF-Value ratio of 1.35.
GuruFocus ranks the Mountain View, California-based online search giant’s profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank and profit margins and returns outperforming more than 82% of global competitors.
