Home » Markets: Stocks still offer value despite new highs. For BlackRock opportunities to be sought in tech and in Europe

Markets: Stocks still offer value despite new highs. For BlackRock opportunities to be sought in tech and in Europe

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With the start of October on the financial markets, the fourth quarter of the year officially opens. After the summer season, investors are now evaluating the main themes of the autumn season with a consideration to be weighed between now and the end of the year: “stocks still offer value, even as markets hit new highs’“. According to the view of Nigel Bolton, co-chief investment officer di BlackRock fundamental equities,the shares are not overvalued. Strong corporate revenues and ultra-low bond yields highlight this. However, considering the situation and the current numbers linked to the pandemic, which appear to be improving, investors will now need to be more perceptive in selecting companies that can exceed earnings expectations“.

A matter of profits

BlackRock’s view on the fourth quarter of 2021 starts with an analysis of earnings. The expert recalls that the companies’ earnings forecasts were updated by analysts at the end of the first quarter of 2021. And again, about 85% of the companies in the S&P 500 index and 65% of the Euro Stoxx 600 index have beat second quarter earnings expectations, well above historical averages. Businesses have maintained the cost controls necessitated by the Covid-19 pandemic and have produced exceptionally strong gains – especially in sectors most closely linked to economic recovery. These revenues help push stocks to new highs.

But where can stock markets go? “Rising earnings expectations mean stocks are cheaper now than they were at the start of the year. This depends both on the price-to-earnings ratio, and on the basis of the ‘equity risk premium’, which measures the return on earnings of shares relative to government bonds, where yields are around historic lows – Nigel Bolton -. However, in our view, the period of synchronized equity market resurgence that followed the Covid-19 shock in 2020 is over ”. For the expert, the key now is to find those companies that can achieve higher profits than analysts’ expectations.

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Investment opportunities: the 4 themes to follow, according to BlackRock

Among the investment opportunities BlackRock indicates 4 themes to follow. The first is that of technology. Covid has, in fact, accelerated the digitization trends that were already evident in all sectors. Sellers of digital ad space are expected to continue to grow rapidly as marketing budgets expand in an increasingly ecommerce-driven world. Cloud computing is fundamental for digital transformation and still represents only 0.25% of global GDP; therefore, experts see opportunities for investors in this case despite the high prices. Cybersecurity is another area of ​​strong growth as flexible working brings new risks. And on a short-term basis, the outlook for the semiconductor industry remains exceptional as auto, computer and smartphone manufacturers scramble for supplies.

Second point revolves around the industrial, with factory automation solution providers expected to benefit from increased demand due to an aging workforce in developed markets, rising labor costs, and companies attempting to strengthen and shorten supply chains . “We like the conglomerates that operate in this industry, because the potential of their factory automation businesses is often not yet reflected in the share price,” they report from BlackRock.

The third point concerns the discretionary consumer goods. Some of the names in luxury remain interesting to us, and recent market swings offer a compelling entry point. These companies have been able to invest in their brand, consolidate their positions as market leaders and pass the higher costs on to their customers amidst an impressive consumer recovery. We believe that companies that are dedicated to animal care are also in a position of strength and this is because the purchase of pets (dogs and cats) has increased during the pandemic, while the current working conditions, now more flexible, have made it more feasible to have pets in the home.

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BlackRock closes its outlook with a council on regional allocations. “Europe – including the UK – is ahead of the US in vaccination rates, the Delta Covid variant has only partially dented the recovery rather than derailed it, while stock market valuations remain low compared to United States. The price-to-earnings ratio in the UK is around 12.5 versus 21.5 in the US “, says Bolton explaining to go looking for innovation, to be found for example among new financial services companies in the UK – one recent spate of M&A activity, in our view, makes the current time attractive to hold UK assets in the portfolio.

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