Morningstar does a great job valuating stocks. Fortunately they periodically apply the same valuation model to exchange traded funds. Yes, energy stocks still look pricey and consumer good and financial stocks look like a bargain.

Price valuation isn’t always the best way to evaluate stocks and market sectors, but it gives you a better idea of what you’re buying. Sure energy stocks (and ETFs) could continue to rise going into 2006, but conventional wisdom says you’d be paying a premium if you buy now.

Sometimes it’s difficult to fight the trend. Momentum can be powerful at times and make valuation watching seem insignificant. Good rule of thumb – If you own an ETF that is overvalued, be sure you have established a stop loss point.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.