Amid political turmoil around the world, the Morningstar Global Markets Index dropped 14% in the fourth quarter to Dec. 20, leaving the broad measure 10% below where it had started 2018.
From a bottom-up perspective, global equities are beginning to look attractive. The median stock across our 1,500-plus coverage trades at a 14% discount to our estimate of fair value. Entering the fourth quarter, we had pegged the typical stock as fairly valued. Not surprisingly, we also see more strong buying opportunities, with 6% of our coverage trading at 5 stars, up from 2% a few months ago.
- Following a plunge in oil prices, the energy sector now ranks among the most attractive. But because U.S. shale production is likely to limit the long-term upside to oil prices, we think investors are more likely to find value in the less-price-sensitive areas of the sector, namely midstream and refining.
- Technology is another area where a sharp drop in shares has rendered a once-overpriced sector more palatable. Here, we think semiconductor stocks are the best bet. While the near-term outlook is weak after a couple years of tremendous growth, secularly growing demand for processing power, connectivity, and sensing capabilities in a wide variety of devices bodes well for the long term. [IMGCAP1)
Sector Outlooks:
Basic Materials:Fewer Buying Opportunities Than in Most Sectors
Communication Services:Attractive, Sustainable Yields on Offer
Consumer Cyclical:Firms That Blur the Lines of Digital and Physical Are Set to Excel
Consumer Defensive:Meaningful Opportunity in Tobacco
Energy:A Drop in Oil Prices Has Made Energy Stocks More Attractive
Financial Services:Value in Banking and Asset Management Firms
Healthcare:Specter of ACA Repeal Hangs Over Fairly Valued Sector
Industrials:Trade Tensions Lead to Attractive Valuations
Real Estate:Only a Few Opportunities in Fairly-Valued Sector
Technology:Semiconductor, Software Firms On Sale
Utilities:Investors Once Again Treating U.S. Utilities as a Safe Haven
Daniel Rohr, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’seditorial policies.
