A Comeback for Stock-Picking

Morningstar's Heather Brilliant expects stock-picking will be an ongoing theme in 2013 and her team of analysts hone in on some undervalued stocks

Heather Brilliant, CFA 3 January, 2013 | 5:26PM
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Market volatility will be a way of life in 2013, as Europe continues to work on solving its debt problems, China’s growth remains closely scrutinised, and the US grows in fits and starts. In this environment, we think stock-picking will make a comeback, and investors focusing on specific stock opportunities will do well given this backdrop.

Overall Market is Nearing Fair Value

We continue to view the market as pretty close to fairly valued, with global stocks under Morningstar coverage trading at 92% of fair value in mid-December, using a market-capitalisation-weighted average. This is not materially different than last quarter, when our coverage universe was trading at 91% of fair value.

The valuations of European firms under Morningstar coverage are no longer less demanding than we see for our North American companies, on average. Our European coverage is trading at 93% of fair value, while our North American coverage universe is currently priced at 92% of fair value. This could have more to do with our coverage universe in Europe than the overall market condition; the approximately 250 European firms we cover tend to be larger-cap, moaty, higher-quality businesses that the market has sought out over the past year. That being said, these names did rally quite a bit in the past three months, as the market was pricing our European coverage universe at 87% of fair value just a quarter ago.

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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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About Author

Heather Brilliant, CFA  Heather Brilliant, CFA, is the vice president of Global Equity and Credit Research at Morningstar.

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