Is the market currently overvalued or undervalued?

According to Morningstar's fair value ratings (which uses a DCF analysis), the S&P 500 is currently worth 1212 as compared to its price of 1170 (so I'm guessing the calculations are as of May 11). So by this measure, it is 3% undervalued. This compares to late December, when the fair value estimate was 1160 when the market was trading north of 1200, 4% overvalued.

Interestingly, the largest 25 stocks are now 10.9% undervalued. While the smallest 250 stocks are 5.3% overvalued. This compares to the December numbers, when the largest 25 were only 3.2% undervalued and the smallest 250 were 19% overvalued.

Six of those largest 25 stocks have 5-star Morningstar ratings (meaning they are the most undervalued). They are MSFT, WMT, AIG, KO, UPS, and HD. BRK.B also has a five star rating. (Though BRK.B is not in the S&P 500, it would be the 12th largest company if it were.)

(Note: the article was referenced in a post over in the Chucks_Angels group.)