Holly Cook: Morningstar analysts seek to identify quality companies by looking for those that have a sustainable competitive advantage, otherwise known as an economic moat. They then use a discounted cash flow model to provide a value for that company's shares. We then compare the current market value of the stock to our analysts' fair value estimate and that gives us a Star Rating. So, those companies that are currently trading considerably higher than their fair value estimate will get a low Star Rating, one star being the lowest; and those that are trading considerably lower than their fair value estimate will get a high Star Rating, with five being the highest.
Looking at our current European coverage, we've identified three companies that right now are looking rather expensive.
The first is Smith & Nephew (SN.). This medical devices manufacturer is trading well above our 783 pence fair value estimate.
The second is Red Electrica de Espana (REE). REE, as it's known, operates the electricity network in Spain and the shares are currently trading close to EUR 70, which is way above our EUR 47 estimate.
And the third and final is ASML Holding (ASML). This technology company, which builds elements crucial for chips that are put in everyday devices such as mobile phones, is valued at EUR 37 by Morningstar analysts.
There are many more that are also looking pricey including AstraZeneca, InterContinental Hotels, Imperial Tobacco and Reed Elsevier.