It will not be easy for investors to hunt for buying opportunities during the second quarter of 2018. But, Morningstar analysts say, there are sectors in which interesting shares can be found at affordable prices.
The Morningstar Global Markets index lost 3,3% in the first three months of the year (in euros).
The decrease recorded in the period, however, did not give appreciable results in terms of equity prices which, globally, continue to be expensive. “The universe of stocks that we cover in our research has a price/fair value ratio of 1,03,” explains Damien Conover, analyst at Morningstar. "This indicates that the market is still too expensive."
AWAY FROM BASIC AND INDUSTRIAL MATERIALS
One sector to avoid when it comes to prices, according to Conover is that of basic materials which has a price fair value ratio of 1,34. “It is a value far above the second most expensive sector ever: that of industrialists who travel at 1,06. The evaluations of basic materials, among other things, will hardly go down given that demand from China, according to our estimates, will increase”. Within this universe, the steel industry segment could be an exception, the future of which is largely linked to what will happen after the introduction of new import duties by the United States.
PRICES ARE INTERESTING BETWEEN TLC AND HEALTH
A segment that, on the contrary, seems to offer purchasing opportunities is that of telecommunications, where the price/fair value ratio hovers around 0,86. “There may be interesting opportunities in Europe, after market regulators blocked some M&A operations that would have led to greater rationalization of both the companies involved and the entire sector,” explains Conover. "China also seems to be a promising area, especially in view of the development of broadband in a market that still has ample room for growth".
Another sector in which it is good to look is the healthcare sector, despite the fact that prices are balanced (the price/fair value ratio is around 1). "In this case, it is the medical equipment sector that raises the prices of the entire sector, while pharmaceutical companies in many cases trade at values that could invite purchases," says the analyst. “The most interesting names, especially for those with a long-term time horizon, are found among the large pharmaceutical and biotechnology companies. Especially among the players who have products for oncological treatments and rare diseases on the launch pad".
Source: Morningstar.
