Which UK Companies are Undervalued?

THE VALUE INVESTOR: Which sectors are the most over-priced when it comes to UK equities? And which stock market is undervalued and which look overheated? 

Emma Wall 20 May, 2014 | 11:38AM
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Over the past five years, the FTSE 100 has rallied 57%. British blue-chip companies, with their geographically diversified revenue streams and steady eddy approach to cleaning up unruly balance sheets have soared.

It’s not just UK corporates that have bounced back from the global recession either, most developed market equities have experienced growth and according to Morningstar Equity Quant research North American and European stock markets are now up to 20% overvalued.

Interestingly, the UK stock market as a whole is considered fairly valued, but within listed stocks there is a wide disparity between sectors.

According to Threadneedle head of UK equities Simon Brazier, retail and consumer services stocks are the most expensive, while oil producers, food retailers and pharmaceutical companies are all cheap.

BlackRock emerging markets fund manager Sam Vecht said valuations matter – and that investors must learn the difference between what makes a good company and what makes a good stock.

“Fancy websites do not matter when it comes to investing – all you should be asking yourself is can you make a return? Look at a company’s cashflow. That is what shareholders get paid out of, not earnings which is a figure made up by an accountant,” he said at the recent Morningstar Investment Conference.


The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar

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