It’s been a positive first six months to 2023: the European stock market was up more than 10% in euro terms, if we look at the Morningstar Europe Large-Mid Cap index. And, valuations are once again in line with the analyst estimates.
Looking at Morningstar’s price/fair value estimate, the European market is trading just 2% below their intrinsic valuation.
It’s clear we have moved a long way from the bargain territory of late 2022, when markets were trading at a 20%-plus discount to fair value. But, Morningstar analysts are pointing out that for markets to move north from here, it will likely take a boost in investor confidence that can only come from a material improvement in underlying market conditions over the coming quarters.
The best investment opportunities according to Morningstar’s data are in those sectors with the highest exposure to economic cyclicality. For instance, the sectors consumer cyclical, financials and communication services. Investors are understandably concerned about investing in such sectors in the event of a prolonged downturn, but our analysts are confident that the gap between current valuations and their fair value estimates provides a sufficient margin of safety to warrant a further look at these sectors.
Here below is the list of the best investment ideas, by sector, selected by Morningstar analysts for the third quarter.
