Advertisement

Skip to Content

Quarter-End Insights

Stock Market Outlook: Scarce Opportunities, but Pockets of Value Remain

The financial services sector is the most undervalued, with banks offering particularly attractive opportunities.

Daniel Rohr, CFA

Apr 1, 2019

The Morningstar Global Markets Index climbed 11% in the first quarter to March 25, recovering nearly all the ground lost in the fourth quarter of 2018. From a bottom-up perspective, global equities are now only slightly undervalued. The median stock across our 1,500-plus coverage now trades 4% below our fair value estimate compared with a 14% discount toward the end of 2018. Not surprisingly, we also see fewer compelling investment opportunities, with the number of 5-star stocks down by half since year-end.

The growing scarcity of strong buys is particularly evident in technology, following the sector's 16% year-to-date gain. As of March 25, no technology sector stocks carry our 5-star rating.
Opportunities are comparably abundant in technology's sister sector, communications services. Europe is a particularly attractive hunting ground for value in this sector.
Financial services ranks among the most undervalued sectors. Valuations are especially attractive in banking. The median bank trades at roughly 15% below our fair value estimate, with discounts generally greater outside the United States.

Opportunities Are Scarcer, but Pockets of Value Remain - Source: Morningstar. Data as of March 25, 2019.

Full Quarter-End Coverage

Communication Services: 5G Wireless Will Prove More Evolutionary Than Revolutionary

Technology: Semiconductors the Most Attractive Tech Subsector

Financial Services: Interest-Rate Expectations Have Pressured Performance

Energy: Stocks, Oil Prices Have Rebounded, but Some Opportunities Remain

Healthcare: Stock-Picking Increasingly Important

Industrials: Attractive Opportunities in Industrial Distributors

Utilities: Valuations Near Peak, but Dividend Yield, Growth Are Tough to Pass Up

Consumer Defensive: Brand Investments Are Key

Consumer Cyclical: Firms Exposed to E-Commerce, China Have Advantage

Basic Materials: Few High-Upside Investment Opportunities

Real Estate: Firms Sensitive to Interest Rates in Short Term, but Less So in Long Term

Transparency is our policy. Learn how it impacts everything we do

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

How we make money

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your personal data

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

Verify your identity, personalize the content you receive, or create and administer your account.
Provide specific products and services to you, such as portfolio management or data aggregation.
Develop and improve features of our offerings.
Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

How we approach editorial content

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.