A spectacularly strong July helped offset a seasonally-weak August and lacklustre September to push the FTSE 100 up 4% over the third quarter as a whole. Though almost half of this gain has already been undone in the first week of October, thanks to the dysfunction of the US government, a 4% rise in a quarter that sees most market participants taking a summer break or focusing their efforts on entertaining holidaying children is not to be sniffed at.
Discussing the outlook for the stock market recently, Morningstar equity analyst Lauren Migliore said she continues to think uncovering undervalued, competitively-advantaged businesses—rather than guessing at macro trends—is the best way to earn excess returns over the long run. “However, the market doesn't always follow fundamentals, and we wouldn't be surprised to see the market become overvalued before undervalued,” she added.
It’s encouraging, therefore, to see that of the then stocks most searched for by Morningstar.co.uk users, five are considered to be moderately undervalued by the market compared to our analysts’ valuation estimates. With Morningstar’s rating for stocks measuring market price against fair value, a 5-Star rating would denote an undervalued stock and a 1-Star rating an overvalued stock. Thus, popular companies Barclays, HSBC, Tesco and Vodafone are all fairly valued at present, but BP, GlaxoSmithKline, Lloyds, National Grid and Shell are all offering some upside.
Quindell Portfolio, which sells software and technology-consulting services to insurers and telecoms companies, is a lesser-known name compared to its fellow top ten members, but after its August announcement that profits surged 49% in the first half and it sees the full-year performance topping market expectations, it’s clear to see why it’s crept onto investors’ radars. Shares in Quindell are up almost 40% over the quarter, however, raising the question of how much further the stock can go in the short term.
10 Most Popular Company Shares in Q3
Lloyds Banking Group (LLOY)
4 Stars
Royal Dutch Shell (RDSB)
4 Stars
Quindell Portfolio (QPP)
Not currently rated by Morningstar analysts
Morningstar Stock Research is available to Premium members only. Not a Premium member? Not a problem: Get instant access when you take a free 14-day trial.