Five market bubbles and five value opportunities, according to the pros

Sure, it’s time in the market – not timing the market – which paves the way for wealth creation. But there’s also something to be said for simply making sensible buys and sells.

In many ways, “buy low and sell high” can be seen as the ultimate mantra for investing: buying assets that are lowly valued and have the greatest potential to appreciate, while avoiding parts of the market that may be overvalued and headed for a correction.

With that in mind, I asked a few investment pros to name and explain one thing they view as a potential bubble and one they see as a screaming buy.

The bubble: pure play AI. The buy: unloved UK.

Darius McDermott, managing director of London-based FundCalibre, says that with all the hype, pure-play AI stocks have become dangerously over-inflated.

And with competition beginning to rise – and with signs that demand could fall – this bubble could soon deflate. Don’t mistake him, McDermott says AI could be the next industrial revolution, but he feels more optimistic about the companies that are integrating the technology into their operations, rather than the pure-play, built-for-the-revolution firms.

McDermott’s bargain buy is the poor, neglected UK stock market where quality businesses with attractive growth prospects are trading at historically low valuations. He says this moment in the UK market bears a strong resemblance to the aftermath of the 2008-09 financial crisis and, in hindsight, investors may view this as the ideal entry point for its shares.

For investors who want exposure to the hefty tech companies that dominate the US stock market, Dzmitry Lipski, head of funds research at interactive investor, suggests the Invesco S&P 500 Equal Weight ETF Acc, which offers less concentrated exposure.

For exposure to the UK, Lipski likes the iShares Core FTSE 100 ETF GBP Dist and the Artemis Income fund.

McDermott particularly likes UK small-cap companies where even deeper discounts can be found. His fund picks are TM Tellworth UK Smaller Companies and IFSL Marlborough UK Micro Cap Growth.

The bubble: bitcoin.The buy: Asia.

Bitcoin has been on an upward tear, but Fairview Investing director Ben Yearsley has been happily steering clear, not a hint of FOMO to haunt him.

He says there are still too many big unanswered questions about it. He rattles them off: “Is there anything backing crypto? What’s the purpose? How can you use it? Who knows apart from the crypto bros?” In his view, bitcoin has always been a bubble because, in his words, “it has no useful purpose”. You gotta hand it to him, the man does not mince words.

On the flip side, he’s pretty chipper about Asian stocks – and has been for a while. It’s not always worked out super well, he admits: India’s been hitting all-time highs, but China’s been hitting long-term lows. That said, he thinks China has officially hit bottom and will start to click upward, even if the property sector’s troubles have still not been ironed out.

He favors FSSA Asia Focus as a core holding paired with Fidelity Asia Pacific Opportunities.

The bubble: unprofitable growth stocks.The buy: commodities.

Shiny things can be tempting, but Ravenscroft stockbroker Ross Garrard says that backing unprofitable companies on the promise of tomorrow’s revenues is a fool’s game. Take, for example, connected fitness firm and pandemic darling Peloton, which is yet to turn a profit.

The fitness firm made its stock debut at $29 and saw its shares soar to $171 in the height of the Covid-era, as folks pondered whether cyclists ever would return to the outdoors and fitness fanatics to the gym. Unfortunately for Peloton, they did, and these days, those shares change hands for around $4.

At its peak, Peloton was valued at $70 billion (or 18 times peak sales), but now it’s worth just $1.5 billion (or 0.6 times 2024 sales) – for a 98% decline.

Garrard says he’s more tempted these days by commodity miners. They’re in bargain basement territory, trading at multi-decade lows despite some of the strongest balance sheets and highest dividend yields around.

Some investors dismiss these stocks on environmental, social, and governance (ESG), but he says that’s a mistake: mining, after all, is key to the energy transition. As a result, there’s been a big under-investment in new supply, even as demand is expected to increase dramatically – and that’s meant that the companies with massive deposits “are sitting on potential ‘gold mines’.”

Ravenscroft’s preferred way to access this opportunity is via the BlackRock World Mining Trust Ord, which has exposure to both copper and gold.

The bubble: gold.The buy: gold miners.

James Sullivan, head of partnerships at Tyndall Investment Management, sees a huge discrepancy between the price of gold and shares in gold miners.

Gold, for one, has sailed beyond $2,000 per ounce and continues to make new highs. And that’s odd because traditionally, gold has fared well when there are negative real yields (that is, when inflation is greater than interest rates). And that’s because there’s no “opportunity cost” or FOMO in holding an asset with neither earnings growth nor yield. The reverse also tends to be true, but gold hasn't exactly floundered since real yields turned positive in late 2022.

Then there’s gold mining. The higher cost of pulling metals out of the earth – stoked by disruptions to global supply chains – has hurt profits and sentiment toward gold mining companies.

Now, with inflation likely to fall, that’s likely to put gold’s price under increasing pressure. And, that could have gold miners sitting pretty. Sullivan says you could seize the potential opportunity with the BlackRock Gold and General fund.

The bubble: offices.The buy: data center REITs.

After a particularly challenging 18 months, it’s safe to say no part of the real estate sector is anywhere near bubble territory. However, one area’s offering some big reasons for concern, says Matt Norris, head of real estate securities at Gravis Advisory. And that’s offices.

And, sure, certain parts of the commercial real estate market (for example, rental growth) are doing better than others, but investors shouldn’t go into these investments blindly. In the UK, new Minimum Energy Efficiency Standards will take effect soon, making a lot of office spaces un-leaseable. That’s likely to leave a huge dent in prices. As Norris says: “While there’s no bubble to burst, values could quickly deflate.”

Interestingly, Norris’s screaming buy (or value opportunity, if you prefer) is from the same sector. In fact, it’s almost office adjacent. And that’s data center real estate investment trusts (REITs). These assets sold off as interest rates climbed higher. So the prospect of rate cuts and increased investment now bodes especially well.

After all, those data centers – which are packed with computer systems and related gear – are essential to AI and the rest of the modern digital infrastructure. And demand for them is exploding. Real estate broker Savills estimates that Europe’s pipeline of data centers alone will have to more than double this year to meet the growing demand for data storage.

To take advantage of that, the VT Gravis Digital Infrastructure Income fund invested in Digital Core REIT, a Singapore-listed pure-play data center strategy, earlier this year.

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