The 5 Most Overvalued Companies in the S&P 500

Although the markets took a dive in the first quarter this year, the next three quarters could see a screaming recovery to new all-time highs. Many analysts and bears thought the markets were overvalued back in February before the coronavirus blew everything up, but does that change with markets even higher than they were back then?

Some investors famously believe that stocks only go up, and if you bought in April you would probably agree. However, most investors consider stocks in relation to their respective industries by using a price-to-earnings (P/E) ratio. Normally, we expect to see industries rising and falling, ultimately building out the market and sniffing out which industries are the cheapest using P/E ratios has been an effective strategy for years.

In August, the S&P 500 and Dow Jones industrial average ran especially hot, and they cooled off in September. Many believe this was a result of profit-taking, but it is logical to think that many saw this run-up in price not justified by the earnings base. With the most recent earnings season in the books, we have a better perspective now where the markets stand as a whole and what their valuations are. The question is whether some companies that have run too hot recently need to cool down.

Here 24/7 Wall St. looks at five of the most overvalued stocks in the S&P 500 on a P/E basis. We have included some analysis, a recent trading history on each stock and what analysts are saying about it. Note that the current P/E ratios are calculated with 2019 full-year earnings as the base, which seems like a good jumping-off point into 2020.

Genuine Parts

Genuine Parts Co. (NYSE: GPC) may not be a household name, but it comes in at number one on this list. Although the company only has a market cap of roughly $14 billion, it has a current P/E ratio of 3,901. For comparison, this is over 100 times greater than the current P/E ratio of the S&P 500. However, on a forward P/E basis, the ratio comes down to a more reasonable 16.9.

Genuine Parts stock has met resistance at about $100 since August as was below $95 on Monday, in a 52-week range of $49.68 to $106.84. The consensus price target is $101.38.