The US stock market appears fairly valued, with the market-capitalization-weighted average, uncertainty-adjusted price/fair value ratio for S&P 500 index constituents that are under active Morningstar research coverage at 102%.
The S&P 500 rose by 43 basis points in September, closing at 2,913.98 at the end of the month. Among sectors, healthcare was the most expensive, trading at 108% of fair value. Communication services was the cheapest, trading at 94% of fair value.
Looking globally, stocks look more attractive, with Morningstar analysts’ Global Large Cap Pick List priced at 82% of fair value. This list surfaces large cap global stocks with attractive uncertainty-adjusted price/fair value ratios, although economic moats, or sustainable competitive advantages, are taken into consideration in the selection process as well.
Consumer staples constituents presented the greatest opportunity, with a market-capitalisation-weighted average price/fair value near 80%.
UK-listed GlaxoSmithKline has been added to the Global Large Cap Pick List over the past month. Analyst Damien Conover comments: “On the pipeline front, Glaxo has shifted from its historical strategy of targeting slight enhancements toward true innovation. Also, it is focusing more on the immune system, with genetic data to help develop the next generation of drugs.
"The benefits of this strategies are showing up in Glaxo’s early-stage drugs. We expect this focus will improve both approval rates and pricing power. From a geographic standpoint, Glaxo is strategically branching out from developed markets into emerging markets. Its consumer and vaccine segments position the firm well in these price-sensitive markets.”
6 UK Stocks on the Large Cap Global Core Pick List
BT Group (BT.A)
BT Group, formerly known as British Telecom, is the incumbent phone operator and largest supplier of fixed-line phone services in Britain, with about 38% market share. BT is the largest supplier of high-speed Internet lines, including lines it wholesales. It is also the largest wireless operator and the only company in the UK that owns both its own fixed-line and wireless networks.
Vodafone Group (VOD)
With 274.9 million proportionate wireless customers, Vodafone is one of the largest wireless phone companies in the world. It is also one of the largest carriers in terms of the number of major countries served. Vodafone has wireless operations in 17 countries and partnership interests in many others. More recently it has acquired cable TV operations and access to fibre, either laying its own or gaining wholesale access, to offer broadband services.
Imperial Brands (IMB)
Imperial Brands is the world's fourth-largest international tobacco company with total fiscal 2017 volume of 265 billion cigarettes sold in more than 160 countries. The firm holds a leading global position in the fine-cut tobacco and hand-rolling paper categories and is a leading seller of cigars in several countries.
Recent acquisitions in the United States make Imperial the third-largest manufacturer in that market. Through its acquisition of Altadis, the firm has a logistics platform in Western Europe.
British American Tobacco (BATS)
Following the acquisition of Reynolds American, British American is neck-and-neck with Philip Morris International to be the largest listed global tobacco company: slightly larger than PMI on net revenue, but slightly smaller on volumes. British American's Global Drive Brands are Dunhill, Kent, Pall Mall, Lucky Strike, and Rothmans.
The firm also sells vapor e-cigarettes, including its Vype brand, heated tobacco, with Glo, as well as roll-your-own and smokeless tobacco products. The company holds 31% of ITC Limited, the leading Indian cigarette maker.
GlaxoSmithKline (GSK)
In the pharmaceutical industry, GlaxoSmithKline ranks as one of the largest companies by total sales. The company wields its might across several therapeutic classes, including respiratory and antiviral, as well as vaccines and consumer healthcare products.
Rolls-Royce Holdings (RR.)
Rolls-Royce is one of the world's leading suppliers of gas turbines and reciprocating engines and services to the aerospace, marine, and industrial power system markets. In 2017, the firm generated £15 billion in revenue. About 68% of revenue comes from civil and defence aerospace equipment sales and services. The land and sea division, which features Rolls-Royce's marine, nuclear, and powers system businesses, generates the remaining 32% of sales.
