Stock market: Looking for value left out there?

Julian Knight wonders where’s the best place to find a bargain

Against the backdrop of economic gloom, eurozone crisis and austerity there has been one silver lining for investors over the past few years – the stock market. In fact the comeback in the stockmarket has been eye catching – gaining 25 per cent in the UK’s case in just two years – comparable with almost any bull market since the war.  Stateside the bounce in the stockmarket has been even more pronounced, with the Dow Jones breaking all records and topping 16,000.  Twitter’s IPO, for a business making no money, surged to new heights, while here we had the Royal Mail doubling in value almost overnight. These are heady days for the stockmarket, but is a lot of this growth already done with, is there any value out there for investors?

Most experts agree that there is but it is not easy to spot at first, or even second, glance.  “The UK market is fair value at the moment and smaller companies listed on the stock exchange are actually looking on the expensive side,” Darius McDermott, managing director of Chelsea Financial Services, said.   Most sectors within the market are trading at what he calls their “long-term average”, which means the share price is roughly in line with historic norms in relation to company earnings.  Surprisingly, given the hoo-ha over the astronomical prices achieved by Twitter in its IPO, technology is one sector trading below long- term trends. “Technology is the most undervalued sector at the moment (globally and in the UK) but is one of the most exciting in my view. It spans all sectors from healthcare to the consumer and the opportunities are boundless. Once governments and companies start spending again, the sector should get an extra boost,” Mr McDermott said.  Rather than investing directly into technology shares, which can be high risk, he recommends collective investments such as unit trusts with managers employed to stock-pick: “In this field I like the teams at AXA Framlington Global Technology and GLGTechnology Equity funds for investors wanting a piece of this action.”

Adrian Lowcock of independent financial advice firm Hargreaves Lansdown likes the pharmaceutical and healthcare sector which can benefit long-term from medical advances and ageing demographics. “Healthcare, which has been a favourite amongst equity income managers, continues to look like good value.    The pharmaceutical sector looks cheap relative to its own historic valuations. Combined with an impressive track record of consistent earnings growth and lagging share prices over the past 10 years it is easy to see why some leading fund managers like the sector.  At present valuations the market does not value the pharmaceuticals’ R&D divisions, in other words it does not expect them to deliver another big drug,” Mr Lowcock said.  Rathbone Income and Newton Global Higher Income are two funds he says are well placed to make the most of any uptick.

Ben Stapley, UK equities fund manager for JPMAM, identifies the economic recovery now gathering pace in the UK as a buying opportunity but not across the board. He said: “Look for companies doing buybacks and paying special dividends.  Easyjet would be a recent example of a major special dividend payout.  They are well capitalized, growing their topline and increasing margins.” 

Outside the UK, experts are generally cool on the US stockmarket. “It is at an all-time high and stocks are standing at very rich valuations compared to their long-term history. Some of the recent social media IPOs have exhibited bubble-like characteristics,” said Jason Holland from Bestinvest.  The eurozone on the other hand is in recovery mode. It is often said that the stockmarket tends to grow in advance of the real economy and if that is right then the eurozone, so long a Cinderella, may be worth more than a look. “Growth outlook remains weak, credit conditions are poor and deflation is a threat. However with Europe staring down the barrel, we feel there is now an irresistible move towards further stimulus, like the surprise rate cut earlier this month. A fund that could benefit would be Baring European Select, with a small and mid-cap bias,” Mr Holland said.

Further afield, emerging markets – such as China, which this week unveiled reforms to further open up its economy – have underperformed in recent times, which could mean they are now undervalued and shunned by investors. “Having had three or four years of relative underperformance compared with developed market counterparts, emerging markets are very unloved - only 4 per cent of clients polled by us last month said they were considering investing in emerging markets) and most (with the exception of Brazil, Taiwan, South Africa and Mexico) are now cheap versus their long-term average - particularly Russia, China and India and frontier markets,” Mr McDermott said.

 What’s more, the long-term story of emerging markets such as a young, growing population and economic growth rates the West could only dream about are still in play. But it is very difficult to invest in direct equities in these markets, so a fund manager for private investors is a must. Mr McDermott favours JPM Emerging Market Income and M&G Global Emerging Markets. Such investments have risks, with currency moves and political upheaval in some emerging economies. It is not for the faint-hearted, but after three years of generally upwards moves in global stockmarkets good value is becoming harder to spot.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Ben Little, right, is a Labour supporter while Jonathan Rogers supports the Green Party
general election 2015
The 91st Hakone Ekiden Qualifier at Showa Kinen Park, Tokyo, 2014
Life and Style
Former helicopter pilot Major Tim Peake will become the first UK astronaut in space for over 20 years
food + drinkNothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
Kim Wilde began gardening in the 1990s when she moved to the countryside
peopleThe singer is leading an appeal for the charity Thrive, which uses the therapy of horticulture
Alexis Sanchez celebrates scoring a second for Arsenal against Reading
Life and Style
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
Life and Style
Buyers of secondhand cars are searching out shades last seen in cop show ‘The Sweeney’
motoringFlares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own