Stocks Look Too Pricey

After a six-month rally, U.S. stocks are getting pricier. Experts say investors should exercise caution. The Standard & Poor's 500-stock index gained 12% during the first three months of 2012, the best start to the year since 1998. After this week's 0.7% drop, the benchmark index has run up a stunning 27% since Oct. 3. Despite the surge, some strategists argue that stocks are still cheap, based on comparisons with bonds. Even though dividend payers were among the most popular stocks in 2011, some look cheaper than they were a year ago.

The WisdomTree Dividend ex-Financials DTN +0.73% exchange-traded fund, for example, has a P/E of 15, down from 16.3 a year ago. Investors looking for individual stocks should consider health care, energy and tech stocks with above-average dividend yields, says Mark Luschini, chief investment strategist at Janney Montgomery Scott. Even after the rally they look reasonably priced, he says. His picks include energy-giant ConocoPhillips, COP -0.19% medical-device manufacturer Medtronic MDT +0.94% and software titan Microsoft MSFT -0.41% .

Source: Wall Street Journal

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