Schroder’s Income manager Kevin Murphy believes continued market uncertainty has lowered valuations of consumer stocks to the point where they now represent a good opportunity to invest.
Speaking at the Joint Investment Forum in Harrogate, Murphy said the sector now looks more attractive than defensives, which are now looking increasingly overvalued.
He said: “The market is nervous on the outlook for the consumer and the economy on the whole, whether it be concerns over the Euro, China or the fiscal cliff.
“We think the consumer facing areas of the market are interesting and these stocks are cheap. Looking at economic data, like price-to-earnings ratios, they are attractive.”
Murphy, who manages the £1.1bn Income fund with Nick Kirrage, has over 40 per cent of his portfolio focused on the consumer, courtesy of exposure in the financials, consumer services and consumer goods sectors.
One example of a stock he believes that will do well is Morrisons, which he predicts its share price could move up 50 to 100 per cent over a three to five year time horizon.
Commentating on his concerns around the defensive sector, Murphy said there is now a marked polarisation in the UK market, with the average price to earnings ratio of the market is 15 times. However, he said some companies are trading at much higher or lower PE multiples.
He said: “The driver of this polarisation is stability. Anything that has delivered stability and traded well over the last couple of years, whether its tobacco or food and beverages, are trading at aggressive multiples.”