There is certainly a case for the rally to continue, but given that the FTSE is up more than 20 per cent in the past six months, investors who want a piece of the action have to accept that a significant portion of the upside has already been missed.
That is not to say, of course, that every stock is more expensive than it has been. Helal Miah, investment research analyst at The Share Centre, says there are pockets of significant value in the FTSE 100, which have not gone up in line with the rallying index.
"Because of the rally we’ve witnessed, it is certainly more difficult to find value," said Miah (pictured).
"That said, there is one stand-out sector – basic resources – where there is value, and one or two stock-specific examples as well." Here are five attractively valued stocks that Miah is tipping.
Aviva
One of the stock-specific examples that Miah thinks is attractively valued is insurance company Aviva, which has had a poor time of late.
"Aviva saw a big correction a couple of months ago, because it cut its dividend," he explained. "The decision was mathematical and essentially the right thing to do, because it needed to restructure."
"However, the dividend is still competitive, and the share price has taken a hit. It’s expected yield going forwards is between 4 and 5 per cent, which is a lot better than you’re getting elsewhere."
A recent FE Trustnet study highlighted the extent to which yields have fallen across the UK market in recent months.
Aviva suffered heavy falls in March when the dividend was cut. It is up 11.38 per cent in the last six months, underperforming the FTSE All Share Life Insurance index, and the wider FTSE 100 index.
Performance of stock vs indices over 6 months
Source: FE Analytics
Our data shows that nine funds in the IMA universe currently hold Aviva in their top-10. These include FE Alpha Manager Julie Dean’s Cazenove UK Opportunities fund.
Aviva has a market cap of £10bn.
Petrofac
"This isn’t a miner, but an oil support services business, which has been impacted by the weakness throughout the sector," said Miah.
"One of its biggest competitors – Saipen – had a big profits warning recently, which has knocked confidence in the whole support-services sector."
While Petrofac has had some disappointing results of its own, Miah thinks it is well-placed to outperform.
"It has a strong order book," he said. "The long-term oil and gas price is likely to be high, and the big oil fields that were previously not very profitable are improving. Petrofac has the technology to support them."
"Because of the back-log, I think there is a lot of potential at this stage," he added.
Petrofac has lost 13.22 per cent in the last year and has also lost money over one, three and six months.
Performance of stock vs indices over 1yr
Source: FE Analytics
It is held by four funds in the IMA universe, including the Ignis UK Equity Income fund.
It is currently yielding just over 3 per cent and is trading on a price/earnings ratio (P/E ratio) of 10.9 per cent. Petrofac has a market cap of £4.5bn.
British Gas
Miah points to this £41bn mega cap as a big value play at the moment. It is hugely popular, held by 128 funds in the IMA universe. Among BG’s biggest admirers are Liontrust Special Sits and the JOHCM UK Opps fund.
"It saw a big decline after the problems with production, but it’s staged a bit of a recovery in recent months," he said.
Performance of stock vs index over 1yr
Source: FE Analytics
"The only problems it has had were with production – the oil and gas is still in the ground, and BG have the technology to get it out."
"They have some major projects in Brazil and Australia which are back on track, and their LNG [liquefied natural gas] sales are looking really good, particularly in Asia," he added.
BG is on a P/E ratio of 18x, and is currently yielding 1.5 per cent.
BHP Billiton
"Commodities prices have been weak, and this could continue, but this is the largest and most diverse business out there," said Miah.
"It’s a really good yield as well, which goes to show how weak the share price has been recently."
Performance of stock vs index over 2yrs
Source: FE Analytics
BHP Billiton is currently yielding 4 per cent.
The company has a market cap of £141bn, making it one of the largest constituents of the FTSE 100.
It is held by 162 open-ended funds, including a number of equity income funds. These include Liontrust Macro Equity Income, Aberdeen UK Equity Income and GLG UK Income.
Randgold Resources
According to Miah, the biggest value play of the five is gold-mining company Randgold Resources.
The sector has had a terrible time of late, with the HSBC Global Gold index down almost 50 per cent over three years.
Randgold Resources has fared better, but has still lost a significant portion over the period. It has actually fallen further than the index over the last six months.
Performance of stock vs indices over 3yrs
Source: FE Analytics
"This is a play on the plummeting gold price," Miah said. "Political upheaval in Mali has also led to a lot of problems."
"However, the most recent trading statement has been positive. It’s not been as affected by costs as other gold mining companies, and recently posted record production figures."
"This should lead to a recovery in the share price and a change in the outlook for commodities will help further."
The £4bn company is trading on a P/E ratio of 16 times. It is held by 10 IMA funds, including BlackRock Gold & General, Investec Global Gold and Fidelity International.