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The Accumulator: where are the good value stocks?

Markets look overheated. Stocks have gone from 'GARP' (growth at the right price) to 'GAWP' (growth at the wrong price). Fund managers reveal the big stocks they think still have value. 

 
The Accumulator: where are the good value stocks?

The Accumulator, our free, weekly, two-page investment newsletter rounding up what the best fund managers around the world are telling Citywire journalists is available now.

This week we have the opinions of five fund managers including:

Commenting before the latest upheaval in the eurozone, fund managers were preoccupied with valuations following the surge in stock markets. Stocks in focus include Diageo (DGE.L) and Reed Elsevier (REL.L) in the UK and Groupe Eurotunnel, Heineken, Fresenium, Novo Norodisk and Schindler in Europe. 

As always The Accumulator includes a unique page of data showing how global stock markets, currencies and the main asset classes are performing. This data is not available elsewhere on the Citywire Money website.

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Here is the latest issue of The Accumulator.

14 comments so far. Why not have your say?

Tony Peterson

Mar 19, 2013 at 17:22

Markets look overheated. (Your sub head)

Who says?

Mind you, your "stocks in focus" are not ones I'd touch.

I'm still buying miners, insurers, utilities, and even banks. I do not think any of them are overpriced today. Especially the miners. A great, for today, buying opportunity. I have to do something with the capital gains we've just cashed in for the end of the tax year.

Eat your hearts out, doomsters.

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alistair rainsford

Mar 19, 2013 at 17:38

sunny

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Rob Walker

Mar 19, 2013 at 17:48

I agree with Tony Peterson. Banks still look cheap (I'd prefer Barclays to manage its debt than Eurotunnel) and there are some good recovering stocks. In my portfolio, Lamprell, Thorntons and Cape are all repositioning in the right sort of way after recent setbacks.

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stencil

Mar 19, 2013 at 17:48

We are in a bull market, Long-term. Interest rates are low and government debt is best avoided. There are few asset classes that match shares in well run companies.

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Lawrence Sautter, Chartered MCSI

Mar 20, 2013 at 16:00

Indeed, markets look a little streched for the moment. They had a very good run. According to the Shiller P/E for S&P500 Index the valuation is at 23.5 times earnings vs the long-term avg. of 16.5x. Companies deleveraged a lot and are still doeing so. They are buying a lot of stock back and the balance sheets are looking healthier. The bull market party is still goeing strong and could last for a while, as there is no real alternative investment opportunity than quality stocks at a fair price with a sustainable dividend policy as a future inflation hedge.

Your strategy: hold on to your global quality stocks and accumulate more at a cheaper price, if the valuation seems to be streched.

Stick to companies with a good business model with pricing power and strong FCF, excellent innovation potential and a fair amount of R&D spend.

Your tactical move: buy more equities and stay/get overweith relative to bonds, when the broad markets start to correct. Government bonds are not attractive and interest rates are artificially low. You have a better inflation hedge with solid companies that can grow their dividends over time and that have a dividend policy of doeing so in the past.

For global stock ideas, portfolio construction and strategy:

follow me on Twitter: sautterlas65

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Lawrence Sautter, Chartered MCSI

Mar 20, 2013 at 16:34

where are the good value stocks?

There you go, some examples and ideas:

first example:

AAPL below US$ 450.- is excellent value, if you are patient.

second expl:

Siemens, great company, if you are looking for cyclical exposure.

third expl:

Unilever, Novartis, Syngenta, BT, BATS as defensive plays.

however, good value is always relative to something else, so do your own research, due diligence and set your quality/value criteria.

Have fun.

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Tony Peterson

Mar 20, 2013 at 17:50

Lawrence Sautter, Chartered MCSI

Before you start patronising people with your exalted status, learn to spell.

You have repeatedly used "doeing" when the word is "doing". And it is "going" not "goeing".

Ok. Sorry. I guess you are not using your first language.

Your analysis of the situation is OK. There are much safer plays out there, though.

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william Westlake

Mar 21, 2013 at 07:54

TP after reading your second post I have a much clearer opinion of who around here is patronising and has delusions about their exulted status. Perhaps you now regret your lack of manners.

I hadn't even noticed Lawrence's minor spelling errors.

I thank Lawrence for sharing his insights and assure him that that I would much rather he continued to do share, rather spend his time studying spelin an gramer. I ask that he not be put off posting by small minded and uncalled for swiping at his professional status and prose.

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bob the invester

Mar 21, 2013 at 10:18

Well sais WW

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Tony Peterson

Mar 21, 2013 at 11:05

OK, chaps. Sorry if I hurt Lawrence's feelings. It just seems a bit pompous to me to advertise your academic qualifications, then make elementary spelling mistakes. I've never been able to resist needling the pompous. There's plenty of posters on these threads with doctorates they don't advertise.

I've got no axe to grind with his advice. Mind I boggled a bit at seeing Siemen's described as a great company, remembering who built the ovens at Auschwitz.

See. I can't stop myself. What's an "invester" Bob? Sorry, chaps. Too old to reform.

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Lawrence Sautter, Chartered MCSI

Mar 21, 2013 at 16:41

I am sorry about Auschwitz and the second World War in that respect. But investing is not about the past, its about the future and Siemens today is a different company with a new management and a new vision for the future.

In the past Siemens has been involved in corruption too, but show me a global player that has a 100% clean vest looking back. Investing is all about the future, discounting future cash flows, anticipating future earnings, sales and dividend growth. Spending money on research and developtment, innovation etc. you name it. Investing is no science, it is an art, because no one has the crystal ball.

Even Warren Buffett talks about having good luck, when he mentioned his investment in Burlington Northern on wrong assumptions turning out well, just by chance. He can talk honestly about that, because he has a great track record.

Others in this business would never talk about having luck, because the perception people have, is the following: in order to look professional, you should

not talk about luck and good intuition, because it leaves a bad impression behind. People want to quantivy everything. But even Warrent Buffett is working with luck, intuition, gut feeling and experience. Nobel price winners are no guarantee for success and performance, like we all know by now.

Sorry about my spelling mistakes.

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Tony Peterson

Mar 21, 2013 at 17:02

Lawrence

You are very generous when I was clearly out of order.

I totally agree with you about luck, and intuition (which is probably the same as gut feeling) but I would add that scepticism about our sources of information, and a willingness to be bold when others are timid, are important too.

We live in a world which is part orderly and part chaotic. We cannot be certain about anything (I've been impressed by how easy it is to work the Heisenberg Uncertainty Principle into my own investment strategy).

However, unless an asteroid, or an economic asteroid, hits us in the near future I think that equity investment will outperform every other sort.

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Lawrence Sautter, Chartered MCSI

Mar 22, 2013 at 00:19

Very true Tony and very interesting that you mention Heisenberg. With Heisenberg and Mandelbrot we are talking about chaos theory and fuzzy logic.

Guesses made by securities analysts and investment advisors represent fuzzy estimates we aim to distill. This can be done through defuzzification. Taking an analogy from physics, what defuzzification essentially does is to establish boundary conditions. This is a subjective process but also very important because it permits us to better define the area within which we make our guesses. It is quite vital to underline that uncertainty (possibility) and randomness (probability) should not be confused. Whether in science or in the arcane arts of financial and economic analysis. The strength of fuzzy engineering lies in its ability to handle subjective judgments. The Monte Carlo Method is a very good tool to handle "noisy" data or better fuzzy data.

And because the world is very uncertain and chaotic, as you mentioned, we have to stress test our strategies more often and do some Monte Carlo simulations which is a standard tool in portfolio construction, especially in a non-Gaussian world. Guesstimating the fair value of securities is indeed a fuzzy concept and the tail risks are mostly underestimated, because the bell curve is a nonsense and tomorrow's prices are not independent of past prices. Concerning asteroids and the probability of hitting us the next time round, thats a different story..............in the mean time I wish you good luck.

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Tony Peterson

Mar 22, 2013 at 07:39

Great post, Lawrence.

However, I'm not so sure about tooling up to construct portfolios. I have preferred to let mine evolve in response to the constant changes in the political and economic environment.

It has not done me much harm.

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